USDC

USDC functions as a stablecoin with a value tied to the U.S. dollar at a 1:1 ratio. For every token in circulation, there is $1 held in reserve, composed of cash and short-term U.S. Treasury bonds. The Centre consortium, which supports this asset, states that regulated financial institutions issue USDC.

The project began with a limited release in September 2018. Its core philosophy is “digital money for the digital age,” aiming to serve an environment where cashless payments are increasingly prevalent.

Proponents highlight several applications for USDC. Beyond offering crypto traders a refuge during market swings, the team says it enables businesses to take digital asset payments and aims to transform various industries, such as gaming and decentralized finance.

The broader objective is to build an ecosystem where USDC gains acceptance across the widest possible range of dApps, service providers, exchanges, and wallets.

The Centre Consortium was established by two founding entities: the peer-to-peer payment firm Circle and the cryptocurrency exchange Coinbase. The consortium remains open to other crypto ventures that wish to join.

Circle co-founders Jeremy Allaire and Sean Neville outlined their vision for USDC, stating that they believe an open internet for value exchange can deeply integrate and transform the world. They aim to remove artificial economic borders, fostering a more inclusive and efficient global marketplace that connects everyone on the planet.

In 2020, Circle and Coinbase jointly announced significant upgrades to the USDC protocol and smart contract. These improvements are designed to facilitate the use of USDC for daily commerce, peer-to-peer transfers, and everyday payments.

The stablecoin sector has grown increasingly saturated in recent years, yet USDC strives to distinguish itself from rivals through several key approaches.

A primary focus is transparency, providing users with the confidence that they can redeem 1 USDC for $1 without complication. To support this, the project states that a major accounting firm verifies reserve cash levels to ensure they align with the number of tokens in circulation.

In contrast to some crypto initiatives, Circle and Coinbase have secured regulatory compliance, facilitating international growth. Both entities are also well-capitalized, which adds stability to the stablecoin.

Coinbase briefly considered diversifying the assets backing USDC but withdrew the plan following significant community opposition. Clarity regarding the source of its funds has been a major driver of USDC’s achievement. Unlike its competitor USDT, which has faced repeated investigations, USDC has never been accused of misconduct. This has allowed USDC to capture a significant portion of USDT’s market dominance: while USDT held a 74%:16% lead in market share in February 2021, that gap narrowed to a 45%:30% lead by February 2022.

After the TerraUSD failure, stablecoin providers faced heightened examination regarding their backing assets. Circle Internet Financial LLC (Circle), which issues USDC, published its reserves data as of July 31, 2022, to enhance transparency.

The document, prepared by global accounting leader Grant Thornton, indicates that Circle’s total USDC reserves comprised $42.3 billion in US Treasury Securities alongside $12.2 billion in cash deposits.

Grant Thornton subsequently issued an independent attestation on August 24, 2022, stating:

“In our opinion, the Reserve Information in the accompanying USDC Reserve Report as of July 31, 2022 is fairly stated, based on the criteria set forth in the USDC Reserve Report, in all material respects.”

Pinpointing an exact circulation figure is challenging because, in theory, the supply of USDC is unlimited. New tokens are minted based on demand, specifically when users exchange dollars for the stablecoin.

However, several elements have driven a surge in USDC’s popularity over time, particularly during 2020. A key factor was the rapid growth of decentralized finance. The asset appears frequently across many DeFi protocols, as it acts as a gateway into the broader ecosystem.

Every USDC in circulation exists as an ERC-20 token on the Ethereum blockchain. A major benefit of this setup is its ability to integrate with applications built on Ethereum. As noted previously, trust and security for this stablecoin are established by demonstrating that U.S. dollars are securely held in reserve.

Given its role in creating the stablecoin, Coinbase is a primary venue for acquiring USDC. The asset is also available for trading on platforms including Poloniex, Binance, OKEx, and Bitfinex, alongside decentralized options like Uniswap.

USDC has set itself apart by building connections with traditional finance entities. After a $400 million funding round involving BlackRock, Fidelity, Fin Capital, and Marshall Wace LLP, BlackRock announced it had “entered into a broader strategic partnership with Circle, which includes exploring capital market applications for USDC.”

The project has secured other major financial agreements as well. In March, it was reported that BNY Mellon, the oldest bank in America, would act as the primary custodian for assets backing USDC. Furthermore, a press release stated that BlackRock will serve as a primary asset manager of USDC cash reserves.