Key points
- USD Coin (USDC) is a centralised, dollar-pegged stablecoin. It is the second-largest stable-priced cryptoasset by market value after Tether (USDT).
- One USDC equals $1, with deviations from the peg extremely small (under 1%) since spring 2020.
- USDC is backed by reserves of debt securities and cash held on the balance sheets of regulated US financial institutions and subject to regular audits.
- The issuer is CENTRE, a consortium of US firms Circle and Coinbase.
Why is USDC a popular stablecoin?
The USDC token was launched in September 2018. Its issuer is the CENTRE consortium, founded by Coinbase and Circle.
As of summer 2022, USDC ranked second among stablecoins by market capitalisation after USDT (Tether). During 2021 its market value, according to CoinGecko, rose more than tenfold—from $4bn to $42.4bn—and reached almost $55bn by the end of June 2022.
USDC is a centralised stablecoin and is popular for several reasons. Market participants trust its issuers: Circle and Coinbase are large, regulated financial institutions that uphold high operating standards and comply with the law.
They have also built a transparent reporting system for USDC’s reserves—the foundation of reliability and trust in centralised stablecoins. The funds backing USDC’s price are held at major US banks and are regularly reviewed by an independent auditor.
According to analysts at Arcane Research, by autumn 2022 USDC would overtake its main rival—Tether (USDT)—by market capitalisation.
What is USDC used for?
Stablecoins are designed to reduce the risks of crypto-market volatility. They are thus suitable for on-chain transactions and for storing capital.
These cryptoassets are useful for investors and traders: they use stablecoins for settlement on trading platforms, to hold profits from trading digital assets, and as part of an investment portfolio.
Additional advantages of stablecoins such as USDC emerge in decentralised finance. The token is used in various trading protocols, including Aave, Celsius Network, Compound and others.
On which blockchains is USDC available?
Originally USDC launched on Ethereum as an ERC-20 token, but it now supports other networks:
What backs USDC?
The centralised issuer of USDC controls the reserves. As of July 2022, they consisted of three-quarters short-term US Treasury bills and one-quarter cash dollars. All funds are held in accounts at leading US financial institutions: BlackRock, BNY Mellon, Bank of New York and others.
Information about USDC reserves is part of the issuer’s public financial reporting. Accounts are audited by the US accounting firm Grant Thornton LLP, which publishes public attestations of the reserves supporting USDC’s dollar peg. Audits check the accuracy, completeness and composition of reserves, as well as internal controls that ensure the accuracy of financial reporting.
Monthly reserve reports are submitted to the US Securities and Exchange Commission (SEC), as Circle planned to become a public company by late 2022.
After the collapse of Terra, Circle’s CEO Jeremy Allaire published a series of messages aimed at bolstering confidence in USDC. In one, he promised that in future reserve reports would be released daily.
What is Euro Coin (EUROC)?
In late June 2022 Circle unveiled a new stablecoin called Euro Coin (EUROC), which is pegged to the euro.
The token was issued on Ethereum and is available on BitMart, Bitpanda, CEX.io, FTX and HitBTC. It also trades on the decentralised exchanges Curve and Uniswap. According to CoinGecko, as of August 15 the stablecoin’s market capitalisation was over $5.3m.
EUROC reserves are held in euro-denominated accounts. Custodians of the funds are Fireblocks, Anchorage Digital and CYBAVO.
Why is the project criticised?
In early August, US authorities added the website of the Tornado Cash blockchain mixer and associated cryptocurrency addresses to the sanctions list.
Circle subsequently blocked USDC addresses of Tornado Cash wallets that held more than 75,000 tokens.
The crypto community criticised the move, and MakerDAO co-founder Rune Christensen proposed swapping $3.5bn worth of USDC—used as collateral for the decentralised stablecoin DAI—into Ethereum. Vitalik Buterin opposed the idea.
In early 2022 at least two blockchain projects—Nomad and Slope—in which Circle had invested were hacked. The company said the incidents did not affect USDC reserves.