Cryptocurrencies are known for the high level of volatility, as their prices may skyrocket or dramatically drop in a matter of a few hours, let alone days and weeks. Under such circumstances, a solution is required that would keep a coin’s price at a stable level while providing users with all other perks of decentralized payment options. In this guide, we are going to review such solutions with a special focus on a stablecoin issued by CENTRE, a consortium consisting of Circle and Coinbase: USD Coin (USDC).
What Is a Stablecoin?
Firstly, let’s give a short rundown of what stablecoins are and how they work. The European Central Bank defines stablecoins as “digital units of value that differ from existing forms of currencies and rely on a set of stabilization tools to minimize fluctuations in their price against a currency or basket thereof.”
Stablecoins are a digital representation of fiat currencies on blockchains, developed to mimic the price of fiat currencies using a stabilization mechanism. This is a type of cryptocurrency with a stable price, so users can always redeem 1 such coin for $1 or any other currency that they are pegged to. Stablecoins can also be an instrument for traders when cryptocurrencies markets are volatile, as a means of switching to a more stable asset.
Why Use Stablecoins?
With the maintenance of a stable rate regardless of the market fluctuations, this financial tool is useful for the protection of capital and profits at periods of intense drawdowns. Also, the capability to transfer funds across the exchanges without the necessity of their conversion to fiat helps asset holders not to leave the cryptocurrency ecosystem. Thus, they stay protected from negative consequences that can arise in some jurisdictions.
Stablecoins are also a good solution for unregulated exchanges that don’t provide conversion to fiat currencies. The scope of their application has also been extended to customers with restricted access to foreign currencies.
Stablecoins are faster and more cost-effective in comparison with fiat money. The payments are settled within a minute, as a rule, depending upon the underlying blockchain. Most stablecoins reside on the Ethereum platform.
The challenges for the widespread adoption of stablecoins include monetary sovereignty risk, AML compliance, and regulatory uncertainty. The benefits include such features as cost, interoperability, and speed.
What Is USDCoin?
USDC is a stablecoin pegged to the US dollar and backed by US dollars held in reserve. The whitepaper of the USDC stablecoin says that it was developed for beginners who want to enter the world of cryptocurrencies safely and without high costs.
Why Was USDC created?
The governments of different countries often resort to the method called Quantitative Easing, which implies the issuance of a new supply of money by central banks globally. Acting this way, they take politically motivated measures to reach certain goals and save certain beneficiaries from collapse, thus destroying the economy. It can however cause a range of undesirable consequences such as inflation and deflation, and creates favorable conditions for the crypto revolution that is currently forming the financial landscape.
All these changes are actively supported by tech-savvy users throughout the world who have become active participants of the cryptocurrency ecosystem. However, there is still much to do for the widespread adoption of this technology. Common people who are interested in cryptocurrencies may still prefer traditional money due to security concerns. The factors keeping them away include:
- Sophisticated systems employed by different blockchains
The UI and functionality offered by cryptocurrencies are usually so complicated that only technically skilled customers know how to operate with them. USDC was designed to facilitate the onboarding process.
- The volatility of the cryptocurrency market
Cryptocurrencies exhibit excess volatility, and sudden changes in the price of the asset may be off putting. Therefore, stablecoins attract beginners looking for a reliable store of value. This is a way to avoid the inherent volatility of cryptocurrencies as the essence of a stablecoin is to be an equivalent of fiat currency. As for USDC, it is an equivalent of a US dollar and keeps its price stable.
The CENTRE consortium introduced the stablecoin as a means of trying to solve these issues and remove obstacles on the way to the widespread cryptocurrencies adoption.
Who Created USDCoin?
In September 2018, Circle announced the release of a fiat-backed stablecoin USDC. Previously, Gemini and Paxos had already announced the stablecoins developed by their platforms. Circle designed USDCoin in cooperation with Bitmain, a leading bitcoin hardware mining manufacturer. It’s worth noting that Bitmain led a $110-million investment round conducted by Circle in May 2018. The company presented USDC as a more regulated alternative to other cryptocurrencies.
USDC became the first stablecoin that was listed on the biggest trading platform Coinbase. The Circle platform developed the underlying technology of the USDCoin in cooperation with the Coinbase team.
On the back of this, the company launched CENTRE to govern the stablecoin, a wholly-owned subsidiary of the company.
Growing Popularity of USDC
USDC was listed on Coinbase in October 2018, and in December 2018 Binance added it to its listing. It helped to bootstrap the liquidity of a stablecoin quickly. The popularity of the USD crypto coin increased even more after it became available for trading in over 80 countries.
The explosive growth also followed amidst the conditions of the coronavirus pandemic, when people started using it as a hedge against the fiat currencies. Also, the development of the Decentralized Finance (DeFi) takes the decentralized concept of blockchain and applies it to the world of finance. Build... sector helped to drive a massive amount of traffic to USDC. Such innovative features as yield farming contributed to its growing popularity. The stablecoin has become one of the leading cryptocurrency assets by deposited amount on different decentralized finance platforms. At the time of writing, the Circulating supply is the number of cryptocurrencies or tokens that are publicly available and circulating in the crypto... of USDC has exceeded 9 billion after it grew by 500% in 2020. The future is likely to be positive with the maturity of the infrastructure around permissionless decentralized protocols.
The Release of USDC 2.0
In August 2020, the CENTRE consortium unveiled the updated version of USDC. USDC 2.0 has advanced functionality for digital wallets and other services that support stablecoins. Previously, holders of USDC and other Ethereum-based tokens were forced to pay a commission to process transactions. At the same time, customers must keep ETH in accounts to pay for the gas.
According to the developers, it was a barrier to mass adoption. To remove this barrier, CENTRE has integrated a gasless send feature into the USDC. This allows wallet developers to pay commissions on behalf of a client or charge fees directly in USDC tokens rather than ETH. The team of the platform developed a public USDC smart contract to integrate the support. Developers can provide this service on their own, or a third-party service to pay the associated fees.
The consortium team believes that gas-free send will significantly expand USDC’s capabilities in payments, peer-to-peer transactions, and e-commerce. The update is fully compatible with previous versions of the protocol. This means that USDC 2.0 does not affect wallets, exchanges, or applications that are already integrated with USDC.
How Does USD Coin Work?
The smart contracts (ERC-20 standard) enable a tokenization process that includes the following steps:
- Application for the KYC verification process;
- On KYC completion, the user receives a specific bank account for a wire transfer;
- The issuer of the USDC employs a smart contract for the creation of the USDC amount sent by the user;
- The customer gets USDC while the US dollars sent by him are stored in reserve.
When the customer wants to convert stablecoins for USD, a reverse process is required. After sending a petition to the issuer of the USDC, the smart contract is used again for the exchange.
What Uses Does USD Coin Have?
USDC is an ERC-20 token that creates possibilities for payment, lending, investing, and trading. With the addition of other tokens and tokenization of goods and services, the ecosystem grows, while the smart contract facilities become the fundamental building blocks of value exchange. The open-source framework that was developed by the CENTRE team enabled the interaction of fiat money with smart contracts, thus providing the possibility of using real-world currencies in blockchain applications.
USDC is used for quick remittances and payments throughout the globe. The customers only need to have wallets and internet access to take advantage of uncensorable interoperable transactions. It’s possible to send large amounts to any location at a low fee. Since it’s a matter of minutes, this type of cryptocurrency asset is irreplaceable for holders. Apart from almost instant settlement, the benefits include round-the-clock availability, irreversibility, and lower counterparty risks.
In comparison with fiat currencies, USDC offers a wide range of uses including 100x leveraged trading, low-cost and secure transactions. The asset can be also used in the DeFi sector when buying cryptocurrency products in dApps.
With this cryptocurrency asset, banking becomes available for the unbanked. It is often regarded as an alternative to traditional finance that brings the democratization process to the international financial system via blockchain technologies.
Other Properties of USD Coin
Transparency of USDC is guaranteed due to their regulation and full support by U.S. institutional bodies. The issuers of the USDC issuers are obliged to deliver transparency to customers.
The stablecoins developed by CENTRE are issued by the regulated, licensed institutions that maintain full reserves of the equivalent fiat currency. The reserve is kept in a special bank account that is monitored and regularly audited. An independent company named Grant Thornton LLP prepares a report on these holdings monthly.
The combination of cryptocurrency properties and a guarantee of its value granted by leading cryptocurrency giants (Coinbase, Circle, and Binance) contributes to the adoption of USDC in the world.
The transparency of USDC is highly assessed by experts, especially after the reputation of Tether and Bitfinex were compromised by the investigation initiated by the New York Attorney General’s office. However, it didn’t blemish the reputation of stablecoins. On the contrary, this case emphasized the need for a legitimate and regulated stablecoin.
How Do You Get USDCoin Tokens?
Apart from Coinbase and Binance mentioned above, customers can buy USDC on numerous exchanges including Poloniex, Kraken, Bitstamp, and Kucoin. It is also available on numerous decentralized platforms including Uniswap (V2), Sushiswap, Balancer, Compound, and others.
How Do You Store USDCoin?
When USDC gained popularity in 2020, users started using personal wallets for the storage of USDC. Since USDC is powered by Ethereum, there are many ways to store the asset – which can be divided into two basic types, using either ERC-20 compatible wallets or hardware wallets.
Any Ethereum wallet can be used for this purpose. For example, Atomic Wallet, Coinbase Wallet, MyEtherWallet, Coinomi, AlphaWallet, MetaMask, Bitgo, and others. As for hardware wallets, the Ledger wallet is the most secure option.
The Bottom Line
While currently the high level of Bitcoin’s volatility makes the future of its mass adoption for daily payments questionable, there are high hopes that stablecoins such as USD Coin have chances to change the situation. This stablecoin is a great solution with many possible use cases and a bright future.
So, with the new found knowledge in crypto, why not sign up to Bybit?