What is USD Coin (USDC) and How To Sell USDC On Blockchain? Discover the benefits of this regulated stablecoin and step-by-step instructions for selling your USDC holdings on major blockchain networks.
USD Coin (USDC)
A digital currency known as USD Coin (USDC) functions as a tokenized U.S. dollar since it is entirely backed by U.S. dollar assets. USDC is categorized as a stablecoin because its main objective is to keep its value at a constant 1:1 ratio to the US dollar. The substantial price swings frequently seen in other cryptocurrencies, including Bitcoin and Ethereum, contrast sharply with this intrinsic stability. Its main goal is to make it easier to spend U.S. dollars on the internet and other blockchains, allowing for quick international transfers and promoting market stability in the frequently unstable cryptocurrency industry.
This is a thorough description of USD Coin:
Understanding Stablecoins and USDC’s Role
One type of cryptocurrency that is especially made to keep its value constant is called a stablecoin. Although the most prevalent types are “crypto versions” of the US dollar, they are usually linked 1:1 to a fiat currency such as the US dollar, Euro, or even the Norwegian Krone.
To maintain this price stability, USDC is backed by reserve assets, usually dollars or euros. This method combines the stability of conventional currencies with the benefits of cryptocurrency’s inherent security, privacy, and quick transaction times. Stablecoins like USDC carry a risk that is largely related to the reserve and its value rather than the overall volatility of the cryptocurrency market.
Although it can fluctuate by small amounts, like $0.0001 to $0.0006, indicating that it’s not always a 1:1 peg 100% of the time, USDC has remained mostly constant since mid-2020, with its price typically staying slightly around $1 (e.g., $1.0001 or $1.0003).
How USD Coin Works
The way that the U.S. central bank issues the dollar is different from how USDC is issued. Rather, Circle, the business that is largely in charge of USDC, ensures that for every USDC token in use, one US dollar is kept in their reserves.
Three crucial processes are involved in tokenization, the process of transforming US dollars into USDC:
- A consumer deposits US dollars into the bank account of the token issuer.
- A matching quantity of USDC is subsequently created by the issuer using the USDC smart contract.
- The U.S. dollars are kept in reserves while the freshly produced USDC is delivered to the client.
The opposite procedure applies when redeeming USDC for US dollars:
- The issuer receives USDC from a consumer.
- The issuer asks the USDC smart contract to convert USDC into US dollars and remove the equivalent quantity of USDC tokens from circulation (in other words, “burning” them by transferring them to a wallet not having access keys).
- The customer receives the net amount after any fees, and the issuer transfers the US dollars from its reserves back to their bank account.
Backing and Reserves
- US dollars and US Treasury securities serve as the backing for USDC.
- Its monetary assets are kept with regulated U.S. financial institutions in separate accounts.
- BlackRock is the manager of the USDC Circle Reserve Fund, which is held at The Bank of New York Mellon.
- These separate accounts are managed by the accounting company Deloitte, which also produces monthly attestation reports. One important aspect of USDC’s reputation that sets it apart from other stablecoins like Tether (USDT) is its dedication to transparency. Additionally, Grant Thornton LLP publishes the USD holdings that all USDC issuers are obligated to declare on a regular basis.
History and Development
The first day of the USD Coin’s release was September 26, 2018. At first, it was run by Center, a group that was co-founded by financial technology firm Circle and bitcoin exchange Coinbase (COIN). Later, this collaboration ended, and Circle was held solely accountable. Circle wants to connect every person, business, financial service, and currency in the globe in order to completely transform the global financial scene.
Since Circle is an authorized money transmitter, it is required to abide by federal rules and regulations and provide money transfer services. This guarantees that all USDC tokens are visible, controlled, and verifiable. Goldman Sachs, an investment bank, also supports Circle. Significant updates to the USDC protocol and smart contract were announced by Circle and Coinbase in 2020 with the goal of making it easier to use for peer-to-peer transactions, daily payments, and commerce.
Key Characteristics and Uniqueness
Low Price Volatility: The primary attraction of USDC is its ability to keep a steady 1:1 value versus the US dollar, particularly in contrast to other cryptocurrencies’ extreme volatility.
Full Backing and Transparency: With cash maintained in segregated accounts and regular attestation reports from Deloitte and Grant Thornton, it is entirely backed by reserve assets governed by U.S. law, guaranteeing a high degree of transparency.
Centralized Nature: One centralized cryptocurrency is USDC. This suggests that Circle and Coinbase, its developers, retain some degree of authority. According to section 13 of their terms of use, “Blocked Addresses & Forfeited Funds,” developers are entitled to blacklist addresses and freeze funds (either permanently or temporarily) in the event that they detect illicit activity. The majority of stablecoins have this degree of control, with DAI being a notable exception, however some users complain about it.
Regulatory Compliance: Regulatory compliance has been attained by Circle and Coinbase, opening the door for global growth and giving the stablecoin stability.
Compatibility: The Ethereum blockchain serves as the foundation for USDC, an ERC-20 coin. Additionally, it works with a number of other blockchains, such as Near, Algorand, Solana, Stellar, Polkadot, and Noble.
Use Cases and Advantages
Hedge against Volatility: During times of notable market volatility, investors might strategically purchase USDC to lower the volatility of their portfolio.
Pricing Digital Assets: USDC can be used to price digital assets on cryptocurrency exchanges in fiat currency.
Stable Price-Pegging: It can be used to represent debt, liabilities, fund investments, or equity ownership due to its price stability.
Remittances: Without a bank account or recipients having to worry about price volatility, USDC may be used to transmit money across borders swiftly, securely, and affordably.
U.S. Dollar Exposure: By including USDC in their cryptocurrency portfolios, non-US investors can increase their exposure to the US dollar and protect themselves from local currency inflation.
Global Crowdfunding: Non-profit groups and start-up businesses can raise money globally in a steady way that guarantees the funds’ value won’t change.
Blockchain Interconnection: The integration of payment systems and apps across several blockchain networks is made possible by its connectivity with many blockchains.
Quick “Dip” Buying: Having USDC on hand enables investors to take advantage of market declines (also known as “dips”) without having to wait for conventional bank transfers.
Trading Strategies: Stablecoins can be used by traders to short or long other cryptocurrencies.
Loans: Aave is one of the several lenders that accept USDC as payment.
Purchasing Goods: It can be used to purchase things on a number of cryptocurrency exchanges, websites, and games that employ blockchain technology.
Avoiding Traditional Finance: Users can avoid traditional financial institutions and tools by using USDC.
Risks and Disadvantages
No Price Appreciation: Since USDC is intended to be fixed to the US dollar, it does not provide price growth.
Not Immune to U.S. Dollar Inflation: Although it remains steady in relation to other cryptocurrencies, it is not impervious to the inflation of the US dollar’s value.
Reserve Verification Concerns: The inability to precisely confirm the quantity of fiat money held as reserves is a major issue with stablecoins, despite its backing from respectable businesses and regular audits by Grant Thornton.
External Influences: USDC is vulnerable to outside factors. For example, almost 8% of USDC reserves were stored in Silicon Valley Bank when it failed, which caused the coin to momentarily lose its peg.
Interest Rate Risk: Although interest rates may spread, there is a chance that USDT deposits will still be more alluring than typical bank returns.
Centralisation Control: As previously stated, in the event that illicit activity is suspected, the developers maintain the ability to freeze cash and blacklist addresses.
How to sell USDC on Blockchain
The main procedure for selling your USD Coin (USDC) on the blockchain is redemption, which entails exchanging your USDC tokens for US dollars. In essence, this procedure is the opposite of the creation or “tokenization” of USDC tokens.
This is how the procedure operates:
Initiating the Request:
- A USDC is sent to an issuer by a user or client. This could entail contacting the USDC issuer directly, such Circle, to seek the exchange for an equivalent amount of USD.
Smart Contract Interaction:
- The issuer then makes it easier to convert your USDC into US dollars by using the USDC smart contract.
- Importantly, at this point, the equivalent quantity of USDC tokens are removed from circulation. This ensures that the amount of fiat money kept in reserve and the number of USDC in circulation remain equal because the USDC is essentially “burned” (sent to a wallet without access keys).
Fiat Transfer:
The issuer then transfers the US dollars from its reserves straight to the client’s bank account. After deducting any relevant fees, the net amount is given to the customer.
Using Crypto Exchanges for Selling USDC: For a lot of consumers, selling USDC through a cryptocurrency exchange is the easiest option. One cryptocurrency exchange that makes it “easy to both buy, sell and store your USDC and other cryptocurrencies” is Firi. On these sites, you can:
- Trade USDC for local fiat money, such Norwegian Krone (NOK), then if you like, sell that fiat money to your bank account.
- The procedure is usually made simpler by cryptocurrency exchanges, who handle the intricacies of communicating with the USDC smart contract and the underlying reserve system on your behalf. You can avoid managing private keys by having them safely store your cryptocurrency in a digital wallet.
Despite being meant to maintain a 1:1 peg with the U.S. dollar, USDC’s price is subject to small fluctuations, such as those of $0.0001 to $0.0006. It has, however, remained mostly steady since the middle of 2020. With cash assets kept in segregated accounts and frequent attestation reports from companies like Deloitte and Grant Thornton, USDC’s backing is transparent and lends credibility to its reserves.
Buying and Storing USDC
Crypto exchanges such as Firi make it easy to purchase and store USDC. A digital wallet for storing USDC is immediately created when an account is created on such an exchange, and the exchange usually handles private key security.
Since USDC is an ERC-20 token on the Ethereum blockchain, it is essential that the wallet support ERC-20 tokens for users that would rather use a private wallet. Trezor, Rainbow Wallet, Ledger Nano S or X, MetaMask, and MyEtherWallet are a few examples of compatible wallets.
Best Blockchain for USDC Payments
USD Coin (USDC) is mainly an Ethereum blockchain-based ERC-20 coin. This indicates that Ethereum is the platform on which it operates initially and fundamentally.
But USDC is also interoperable with a number of other blockchains, which makes it possible to utilize it in a broader ecosystem and makes it easier for payment systems and apps to connect to other blockchains.
- Ethereum
- Algorand
- Solana
- Starry
- Polkadot
- Noble
- Near
.Do not specifically name or rate a “best” blockchain for USDC payments, despite the fact that USDC is intended to facilitate the usage of US dollars on the internet and blockchains by facilitating quick international transfers and promoting market stability. The best blockchain for USDC payments would rely on a number of variables, not all of which are specified for each mentioned blockchain, including transaction speed, fees, network congestion, and particular user or application needs. Its compatibility with several blockchains demonstrates its adaptability and goal of integrating payment systems from other networks.
Future of USDC
The goal of stablecoins like USDC is to allay worries about volatility and regulatory uncertainty, which frequently discourage conventional investors from using cryptocurrencies. According to Circle, USDC is especially well-suited for people or organizations looking to transfer medium- to large amounts of money. By increasing their attractiveness to institutional investors, such stablecoins may be essential in moving cryptocurrencies into the mainstream.