Although cryptocurrencies have many advantages, the problem is that their prices are unpredictable and tend to fluctuate significantly. Therefore, stablecoins play an important role in the cryptocurrency ecosystem. They can be defined as a digital asset with a fixed price, whose market value is tied to another stable asset. Stablecoins are immune to volatility and greatly facilitate safe investment in other digital currencies. 

Currently, there are already more than 100 stablecoins on the market. However, two of the most important and popular can be identified among them, namely USD Coin and Tether (USDT), which together account for 80% of the capitalization of the global stablecoin market. This text will discuss USD Coin considered the second largest stablecoin with a market capitalization of about $73 billion. However, keep in mind that the figures given here are subject to change. 

The beginning of the USDC

As the name suggests, USD Coin (USDC) is a cryptocurrency whose value is tied to the US dollar.This stablecoin was created in September 2018 as a joint initiative between cryptocurrency exchange Coinbase and Boston-based financial data encryption company Circle. It then became an alternative to other USD-based cryptocurrencies such as Tether (USDT) and TrueUSD (TUSD). 

The support of such large corporations has helped popularizeUSDC and helped build confidence in this stablecoin. As a result, USD Coin has been accepted by many global exchanges and can be expected to gain more and more prominence in the cryptocurrency market over time.

Some facts about USDC 

USD Coin is one of the most popular stablecoins – cryptocurrencies whose value is correlated to other assets, such as fiat currencies, commodities and even other cryptocurrencies. The USDC, on the other hand, is correlated 1:1 with the value of the U.S. dollar, meaning that its value is always fixed at $1 per token.

As with the US dollar, which is divisible into cents, the USDC token is also divisible. It is possible to store as little as 0.000001 of the value of a USD Coin. However, the Coinbase exchange has set a withdrawal limit of no less than 0.001 USDC. An upper limit for a single withdrawal has also been set, which cannot be more than 15,000,000 USDC.

How is the constant value of the USDC maintained? It is backed by cash and short-term US government bonds as a form of assurance. For every USDC token in circulation, $1 is held as collateral. The value of the USD Coin is directly tied to these physical assets, so its value is held constant.

Another important note is that USDC stablecoin is available on several major blockchain networks, including Ethereum, Algorand (ALGO), Solana (SOL) and TRON (TRX).

What are the advantages of USDC?

The obvious advantage of USD Coin is its stable price, which is a common feature of all stablecoins. This is what sets them apart from other cryptocurrencies, whose prices can change drastically even within a few hours. Investing in USDC seems to be a safe option for those worried about sudden drops in the value of cryptocurrencies. This stablecoin can be safely stored on an exchange or in a cryptocurrency wallet, and then used to finance the purchase of other cryptocurrencies.

One of the main advantages of this stablecoin is considered to be that it allows users to buy and sell other cryptocurrencies without having to transfer fiat currencies to an exchange and vice versa. USDC also allows you to make fast transactions, with very low costs, so using it is economical in terms of cost and time. 

This is especially important when considering global transactions. Putting U.S. dollars into the blockchain network allows them to be moved anywhere in the world within minutes regardless of value, time of day or location. This rapid transfer of capital across different geographic jurisdictions, seems even more advantageous if we compare it to traditional and costly bank transfers. 

The USDC is often pointed to for its reliability and transparency. Due to the array of security features surrounding it, it is seen as one of the safest stablecoins. USDC-based transactions are audited by Grant Thornton, a US accounting and consulting firm. In addition, Circle declared in 2022 that it will release weekly reports revealing the exact amount of actual funds backing USDC.

Does investing in USDC involve risk? 

As you can see, USDC has many advantages, but this stablecoin does not necessarily mean a good investment. Both USDC and other stablecoins appreciate in value due to their unchanging value, and are not expected to benefit from an increase in their price. The opposite is true for other cryptocurrencies, such as bitcoin and ethereum. The USDC aims to help companies or individuals transfer currencies in a faster and cost-effective way. It also means reducing the need for traditional intermediaries such as banks. 

Are there risks involved in investing in USDC? As you already know, each USDC token is backed by a single U.S. dollar, but it is not a legally regulated and insured means of payment by the U.S. government. USDC users may also have some doubts about the fact that it is difficult to verify whether the issued cryptocurrency has an adequate amount of reserve in physical assets for its value.  

However, it is worth remembering here Circle’s commitment to filing reports that reveal the amount of actual funds backing USDC. Such collateral is an exception compared to other stablecoins, and allows us to conclude that the risks associated with investing in USDC are rather low.