How Does USDC Work?

USD Coin (USDC) is a stablecoin pegged to the value of the U.S. dollar.

AccessTimeIconJun 6, 2022 at 5:15 p.m. UTC
Updated Apr 9, 2024 at 11:28 p.m. UTC

USD Coin (USDC) is a stablecoin launched in 2018 by Centre, which is a consortium created by Circle and Coinbase. USDC is an open source protocol, which means anyone can use it — not just Circle and their partners.

USDC along with tether (USDT) equates to more than 80% of total market capitalization for all U.S. dollar-pegged stablecoins. Though USDT has the largest market capitalization among all stablecoins, USDC has its advantages and differences among its peers.

What is the point of USDC?

USDC is basically a tokenized version of the U.S. dollar (USD). It is fully redeemable, meaning you can trade it for the same amount of cash you deposited to create your account. USDC provides customers with a fast and cost-effective way to transfer value quickly anywhere in the world. Unlike some stablecoins linked to the price of a single asset or basket of assets, USDC's value is tied directly to the U.S. dollar. USDC reserves are held in segregated accounts in the United States with regulated U.S. financial institutions in the form of cash and short-duration U.S. Treasuries.

The USDC protocol was made to provide better access to cryptocurrencies to the general public. The goal behind USDC is to help the cryptocurrency sector become more user-friendly.

USDC was also developed in order to be used by businesses and individuals alike. As USDC provides an open-source smart contract, this allows other companies to develop their own blockchain products, such as wallets and exchanges. However, those who want to use the U.S. dollar as a payment or reward system for their customers, employees or partners can access these services easily through USDC's Payouts solution.

How does USDC work?

USDC was developed to be used in place of the U.S. dollar in the crypto world and make it easy to exchange and use it. As it's pegged to the U.S. dollar, you can rely on its consistent value even as the value of other cryptocurrencies fluctuate.

As a retail user, to convert your U.S. dollars or whatever fiat money you have into USDC, you'll need to do three things:

  1. Register an account with a partner exchange that supports USDC.
  2. Deposit fiat currency into your account with the exchange by way of wire transfer, credit card or bank account.
  3. Buy USDC with your fiat currency.

On the other hand, you can convert your USDC into fiat currency by doing the following:

  1. A user asks the exchange platform to convert any number of USDC tokens for fiat.
  2. The exchange then sends a request to the USDC smart contract to convert their tokens for fiat and remove an equivalent number of tokens from circulation.
  3. The issuer sends back your requested amount of fiat to your bank account equaling the USDC tokens minus incurred fees.

Accredited investors and businesses can get USDC directly from Circle by signing up for a Circle Account.

In contrast to other stablecoins, the team behind USDC commits to providing complete transparency and partners with financial institutions in maintaining its fiat reserves – a unique feature for a stablecoin. USDC exchanges and partners are obligated to report their U.S. dollar holdings regularly.

Difference between USDC and other stablecoins

USDC is a stablecoin that is issued by Circle. Circle and Coinbase formed the Centre Consortium as a governing body for USDC.

Among the differences between USDC and other stablecoins is that, according to Circle’s site, “USDC reserves are kept in the custody of leading U.S. financial institutions, including BlackRock and Bank of New York Mellon. Cash is held at US financial institutions; US Treasuries are held at third party custodians.”

USDC has been used as a substitute for U.S. dollars on major exchanges, such as Coinbase, Kraken, Binance, Poloniex and Gemini.

Primarily, USDC differs from other stablecoins in three general ways:

  • USDC has been transparent and proactive in creating safeguards in the event of a future government investigation.
  • USDC is fully backed by fiat collateral and not dependent on the potential future value of its use case or the value of other cryptocurrencies like some other stablecoins are.
  • USDC issuance is regulated pursuant to U.S. state money transmission supervision and is subject to ongoing examination of Circle and its operations.

Many regulated institutions have been hesitant to enter the crypto market because of its lack of regulation and security. As USDC is fully backed by cash and U.S. Treasuries, one of USDC's core value propositions is that a financial institution can hold it without fear of fluctuation. This is an important step forward for the crypto market, as it allows regulated institutions to begin offering crypto products without worrying about volatility risk.

Final thoughts on USDC

Purchasing USDC won't provide any investment returns for buyers because it was designed to be a stablecoin. However, the benefits of buying this cryptocurrency are more about how useful it is rather than how much money you can make from an increase in price.

Based on its characteristics alone, USDC makes it a viable solution for businesses and individuals to transfer money in a matter of seconds while also saving them time and money by eliminating the need for banks or other middlemen.

UPDATE (June 3, 17:15 UTC): Updated information to clarify details and remove mention of SEC approval for accredited investors.

This article was originally published on Jun 6, 2022 at 5:15 p.m. UTC


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Mike  Antolin

Mike Antolin was CoinDesk's SEO Content Writer for Learn.

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