Digital currency has emerged as an important financial tool in recent times and with that various types of cryptos have started to arrive and one among them is stablecoin. These coins are a bit different from our regular cryptos as they are backed by a fiat currency. For this reason, they have less price volatility. One such coin is the USD Coin (USDC), about which we are going to learn in this article.
What Is A USD Coin?
USD Coin (USDC) is a cryptocurrency that is completely backed by U.S. dollar assets. This is a tokenized U.S. dollar, with the value of one USDC crypto pegged 1:1 to the value of 1 U.S. dollar. The price of USDC is created to stay stable, making USDC a stablecoin.
Stablecoins are usually backed by reserve assets such as euros or dollars to attain price stability. The value stability of USDC contrasts sharply with the infamous price fluctuations of other digital currencies like Ethereum and Bitcoin. Despite its name, it is crucial to note that USDC is not backed or issued by the U.S. government. The USD Coin to USD is not the same. USD Coin is an open-source project, implying that anyone can see and contribute to the code of the project.
Understanding USD Coin
USDC is a digital currency that is completely backed by U.S. dollars or dollar-denominated assets like U.S. Treasury securities. The reserve assets of USDC are held in segregated accounts with restricted U.S. financial institutions.
You may be thinking about how USDC keeps up with the 1:1 peg with the U.S. dollar. So the USD Coin price is $1. If you begin a transaction to purchase one USD Coin using a fiat currency, then that fiat currency is stored and deposited as one U.S. dollar and the latest USDC is minted. If you also sell a USDC in exchange for fiat currency, then in that case the USDC is “burned” when the fiat money is transferred back to your bank account.
USDC is compatible with various blockchains, that include:
USD Coin is handled by Centre, which is a consortium co-founded by the digital currency exchange Coinbase and Circle, which is a financial technology entity. Centre tries to alter the global financial scenario by connecting every merchant, financial service, person, and currency globally.
Advantages And Disadvantages Of USD Coin
Now that the concept of USD Coin crypto is clear to you and you know how it actually operates, it is time for you to know the various advantages and disadvantages that this crypto brings with it. So without any further delay, let us begin.
- Low price fluctuations
- Completely backed by the U.S.-regulated reserve assets
- Can be employed as a safeguard against inflation
- No appreciation of price
- Mix of reserve assets not completely disclosed
- Not immune to U.S. dollar value inflation
Use Cases Of The USDC
As a price-stable virtual asset, USDC can be employed in various scenarios:
- Hedge against volatility: Investors with exposure to other cryptos can decrease their portfolios’ fluctuations by strategically purchasing a stablecoin like USDC. Buying USDC during periods of prominent market fluctuations can help to stabilize the value of a portfolio.
- Pricing in fiat money: Digital assets listed on digital currency exchanges can be valued in fiat money using a stablecoin like USDC.
- Stable price-pegging: The value stability of USDC allows the stablecoin to portray fund investments or equity ownership. USDC can also be used to portray liabilities or debt.
- Remittances: USDC can be used to send funds through borders. Recipients can keep USDC without using a bank account or being tensed about price fluctuations.
- U.S. dollar exposure: Non-U.S. investors aiming to gain exposure to the U.S. dollar can add USDC to their digital currency investment portfolios.
- Hedge against inflation: Non-U.S. investors who are tensed about inflation of their local currency can invest in stablecoin like USDC to help safeguard the value of their money.
The Bottom Line
USD Coin is a fiat-collateralized stablecoin, implying that USDC tokens are collateralized by fiat currency like U.S. dollars. Other forms of stablecoins that include those that are collateralized by a digital currency, or an algorithm, or by the hybrid approach. As per the USD Coin price prediction, the USDC Price is forecasted for 15.02. 2022 to be in the $0.9808799 – $1.021 value range. USDC, as a digital currency, is generally thought risky as an investment. While stablecoins like USDC have less price fluctuations compared to other digital currencies, stablecoins may be subject to raised scrutiny by regulatory agencies like the U.S. Securities and Exchange Commission. Investors should be aware of the risks before buying USDC.