Crypto Corner: How The USD Coin Stays So “Stable”

Things have been weird in the crypto space recently, fear and uncertainty have reached new highs as volatility rocks the market… we’re seeing adoption levels dipping in the midst of the collapse of a popular coin, according to research by Citi. But, instead of dread and worry, we’d prefer to look at this as the inevitable growing pains of a young sector, not the end of it… a learning opportunity, not a time to panic.

So, if you’re new to crypto, or even just curious about the space, it’s the perfect time to focus on a coin that was engineered and launched specifically to combat against volatilities of the crypto market: the USD Coin (USDC), a stablecoin that has managed to differentiate itself and stay steady, even in the current choppy waters of the space.

And make no mistake, the current storms will not stop the onslaught of crypto… just last year, the US Office of the Comptroller of the Currency (OCC) issued guidance stating that banks may use blockchains and stablecoins to facilitate payments. Crypto is here to stay, and will increasingly become a staple in everyday life, so let’s learn a bit about the UDSC and prepare ourselves for the future.

How The Money Gets Mined

A hallmark of stablecoins is that they are commonly backed by reserve assets, hence the name. USD Coin (USDC) is a digital currency backed by U.S. dollar assets… basically, a tokenized version of the dollar, with its value pegged to the dollar at a 1:1 ratio in order to ensure that the value of the coin stays stable. So, the USDC is a fiat-collateralized stablecoin, but what’s that and how does it work?

In order to maintain this stability, USDC reserve assets 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. Although, it is important to note that USDC is not issued or backed by the U.S. government. So, USDC is not linked to the price of a single asset or basket of assets but is tied directly to the U.S. dollar.

USDC was created through a joint venture of fintech company Circle and the highly popular crypto exchange, Coinbase. Circle is the organization behind CENTRE, a consortium that creates frameworks and standards to improve mainstream adoption of stablecoins. The coin was created about nine years after Bitcoin, with the backing organizations setting out to create something more stable, something that wouldn’t be as subject to the speculations of the crypto community.

The team behind USDC has reiterated a commitment to transparency in maintaining fiat reserves, with USDC exchanges and partners being obligated to report their U.S. dollar holdings regularly. And reserves are kept in the custody of leading, trusted financial institutions, such as BlackRock and Bank of New York Mellon, while cash is held at US financial institutions and U.S. Treasuries are held at third party custodians.

Some important differentiating factors for UDSC are that the coin is regulated and audited. The coin is regulated by the federal government’s network that combats money laundering, the Financial Crimes Enforcement Network (FinCEN). This is because the coin’s parent company is a registered Money Service Business in the United States. The coin is also audited by one of the top accounting firms on earth, Grant Thornton.

For every USDC in circulation, $1 is held in collateral. When a transaction is initiated to buy one USDC, then that single dollar is deposited and stored as one U.S. dollar and a new USDC is minted. When that USDC coin is sold for fiat currency, then the USDC is burned (a term in the crypto space which means to permanently pull the coin out of circulation), and the fiat is transferred into the account of the initiator of the transaction. To access the USDC, one only needs to join a major exchange, meet the verification requirements, and begin trading.

The Use Case

USDC can be used to hedge against volatility, to price fiat money, used to represent liabilities or debt, for remittances when sending cross-border payments, added to an investment portfolio to gain exposure to the U.S. dollar, as a hedge against inflation against local currencies, in crowdfunding, and as a way to integrate payment applications and systems across blockchains.

The pace of adoption for the UDSC is picking up. Recently, Worldpay (a leader in card-to-crypto processing) from FIS has become the first global merchant acquirer to offer direct USDC settlement… meaning, Worldpay will allow merchants to receive settlement in USD Coin (USDC). The pilot merchant for Worldpay’s USDC settlement offering will be And we can expect more adoption moving forward.

Recently, at the World Economic Forum, the CEO of Circle pushed very hard for the adoption of digital money in developed countries. He believes that failure to adopt can mean roadblocks for payment systems and accused policy makers and regulators of using fiat money and barriers to entry for cryptocurrencies as a control tactic to strip people of their economic freedom. Ultimately, he would like to see digital money wholly adopted and as easy to use and prolific in our society as email.

We’ve recently seen the collapse of a powerhouse stablecoin, Terra … but Terra and the USDC are very different animals, with two totally different types of backers. USDC is taking a totally different trajectory and is gaining more exposure and adoption by the day. Are the safeguards in place for the coin enough to convince people to work through their fears and play the crypto game? Come back next week, and we’ll continue to explore the many facets of cryptocurrencies and prepare you for the future of money.