DeFi 101: What Is USDC?

USD Coin (USDC) is a stablecoin that’s fully backed by the U.S. dollar. The digital currency functions like a tokenised U.S. Dollar, with billions of USDC changing hands every day and users able to redeem each token on a 1:1 basis for actual U.S. Dollars.

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One shortcoming of cryptocurrencies like Bitcoin is they are wildly volatile. Their value rises and falls on a daily basis, making them unsuitable to use as cash. 

This is why the crypto industry created stablecoins. Stablecoins mitigate the volatility of traditional cryptocurrencies. At the same time, they harness the faster, safer, and more efficient payment processes available on the blockchain.

Imagine being able to send money just like you send an email, twenty-four-seven and at internet speed?

This is all possible thanks to USDC, one of the world’s most popular stablecoins.

USD Coin (USDC): Background

USD Coin (USDC) first hit the headlines on 15th May 2018, following an announcement by Circle, the entity behind the token.

Circle then officially launched USDC in September 2018, under the watchful eyes of U.S. state banking regulators (the same people who regulate PayPal and Stripe), and the token has become one of the most established digital assets in circulation today.

In March 2021, global payments giant Visa announced it would allow the use of USDC to settle transactions within its payments network, a significant step forwards in the adoption of stablecoins as an accepted payments alternative.

The leading reasons for its acceptance by Visa were its transparency and trustworthiness: Centre, the consortium that manages the token, releases monthly attestations confirming the number of USDC in circulation and the value of its reserves.

There’s now over $50 billion USDC in circulation, all backed by cash and cash equivalents, nothing else, which makes USDC one of the most robust stablecoins in circulation, too.

That’s why over 1.5 million wallets hold the token, and over 190 countries support it. 

How does USDC enter the supply?

A circulating supply of over $50 billion USDC highlights the strong (and growing) demand for the stablecoin.

But how does USDC actually enter into circulation?

In essence, anyone can mint USDC. You simply buy the tokens. Then when you sell, the coins you sell will exit the supply. Suppose you buy USDC on Binance, one of the world’s leading digital asset exchanges.

Here’s how the USDC minting process works:

1. You deposit your preferred currency on Binance
2. You exchange your deposit for USD Coin (USDC)
3. Binance mints new USDC from the blockchain

You can then use the newly-minted USDC however you want, while Binance will deposit real U.S. Dollars into the USDC reserves.

The process works the same way when selling USDC, just in reverse, which ensures the U.S. Dollar reserves always back USD Coin’s entire supply. But we’re still left with one fundamental question.

What’s the point in minting USDC? Let’s answer that now.

What can you use USDC for?

At the highest level, you can use USDC like cash.

You can send it, spend it, and trade it on exchanges. But why not just use the U.S. Dollar? Because USDC offers high transaction speeds and negligible costs.

• USDC transactions are near-instant
• You can send it around the clock
• When you send it, it costs a fraction of a cent (not several dollars like on traditional payments networks)

But where USDC becomes really interesting is its use in decentralised finance (DeFi). 

Developers have used it to replicate traditional financial services on the blockchain, building applications that offer services like decentralised savings plans and lending products. 

These applications make it possible for anyone, anywhere in the world, to deposit digital assets like USDC into liquidity pools and earn higher-than-average yields — or to secure an instant, dollar-denominated loan in just a few clicks.

USD Coin is the bedrock on which much of decentralised finance now sits. And it’s one of the most trusted tokens in the crypto ecosystem.

That’s why Elitium trusts it in our digital asset-powered savings plans, too.