Cryptocurrency

What is USD Coin (USDC) | Whitepaper Summary

What is USD Coin (USDC) | Whitepaper Summary

What is USDC Coin?

USDC or US Dollar Coin is a stablecoin whose value is pegged to the fiat currency US Dollar ($). This is different from Bitcoin, Ethereum, or other cryptos that are free-floating. USD Coin is managed by a consortium called Centre, which was founded by Circle and includes members from the Crypto Exchange CoinBase and Bitcoin mining company Bitmain among others.

The consortium claims that each USDC token is backed by a dollar in reserve, or by some other “approved investments” though these investments are not made public. Stablecoins like USDC are primarily designed for providing price stability in the volatile Crypto Market by providing a reliable store of value or unit of account. They are also useful as a medium of exchange when you want the benefits of anonymous, digital, borderless payments without having to accept the price volatility risks associated with cryptos like Bitcoin and Ethereum.

EMERGENCE OF USD COIN (USDC)

USDC was created to provide the benefits of both Fiat currency and crypto into a single token without any of their disadvantages. While USDC isn’t the first US Dollar Backed stablecoin, it is currently one of the most popular stablecoins out there. This can be due to various reasons which set it apart from other cryptos.

  1. Regulated: USDC’s parent company is a registered Money Service Business in the United States. That means it’s regulated by the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which combats money laundering.
  2. Audited: USDC financials are audited monthly by Grant Thorton LLP which is one of the largest accounting firms in the world. Its audit reports are made public so that people can rest assured that their token is backed 1:1 by fiat US Dollars.
  3. Fast: Transferring money by traditional methods involves multiple banks which can take a long time. This method also has the disadvantages of banks being closed and governments shutting down the SWIFT messaging service for particular banks like the recent incident of the SWIFT Ban against Russian Banks imposed by the European Union and NATO.

USD COIN WHITEPAPER SUMMARY: ARCHITECTURE

USD Coins aren’t just created by a magic printer. Every USDC coin will, according to Circle, be backed by a single US dollar. Tokenization is the process of converting US cash into USDC tokens. The 3 steps involved in tokenizing USD into USDC are:

  1. A user transfers USD to the bank account of the token issuer.
  2. The issuer generates an equivalent quantity of USDC using a smart contract for USDC.
  3. The freshly created USDC is given to the user, and the US dollars that were used in their place are kept in reserve.

Although the method is reversed, redeeming USDC for USD is just as simple:

  1. A user asks the USDC issuer to exchange USD tokens for an equivalent quantity of USD.
  2. The issuer requests that the USDC smart contract convert the tokens into dollars and remove an equivalent number of tokens from circulation.
  3. From its reserves, the issuer returns the desired amount of USD to the user’s bank account.The user receives the net amount, which is equal to the amount in USDC tokens less any fees paid.

Unlike the most well-known stablecoin, Tether (USDT), the makers of the USD Coin are required to maintain full reserves of the comparable fiat currency while also cooperating with several financial institutions. All USDC issuers are required to report their USD holdings regularly, and Grant Thornton LLP then publishes those reports. You can find here all of the monthly attestation reports.

Additional Read: USDT vs USDT

ADVANTAGES OF USDC

  1. Blockchain interoperability Due to its Ethereum blockchain foundation and compatibility with all Ethereum-based protocols and apps, USDC may be easily integrated into current platforms and systems.
  2. Transparency The Ethereum blockchain maintains a record of every USDC transaction. This public ledger offers a high level of transparency by making it simple to follow and confirm all transactions.
  3. Security Since USDC is a digital asset, you can keep it in a crypto wallet. This benefit adds an extra degree of security because your USDC is not owned by a single entity and is secured by the Ethereum blockchain’s encryption as well as any additional security measures the platform may have put in place.
  4. Blockchain interoperability Due to its Ethereum blockchain foundation and compatibility with all Ethereum-based protocols and apps, USDC may be easily integrated into current platforms and systems.

USD COIN WHITEPAPER SUMMARY – TOKENOMICS

As per USDC whitepaper, the operation is quite simple. Ether and other ERC-20 cryptos are contained in an ERC-20 asset built on the Ethereum network. Users can transmit the tokens to addresses that are under the control of CENTRE members to redeem USDC. After receiving the token from the user, the company burns the tokens and deposits the money in fiat currency into the user’s bank account.

The USDC coin is always “stable” on a 1:1 basis because its price is tied to the US dollar. Investors who are worried about the value of their capital declining can feel more at ease as a result. There should always be $1 worth of USDC available for purchase or sale. While the supply of some cryptocurrencies, like Bitcoin, is set, there is no cap on the total quantity of USDC in existence.

It’s also feasible that its supply will fall. Circle announced in May 2021 that more than $15 billion in USDC were currently in use on the four blockchain platforms it supports. This achievement occurred less than two months after USD Coin’s overall market cap reached $10 billion. USDC is equally divisible with US dollars.

This means that sending 100 USDC to a buddy would be simple if you wanted to send them the equivalent of $100. Several cryptocurrencies are backed by dollars, and USDC is one of the biggest. The most widely used stablecoin, however, is Tether, which also has a far higher market cap.

The highest price of USDC is $2.35 and the lowest is $0.9874. Since there is no theoretical limit to the number of USDCs that could exist, it is quite challenging to provide an accurate figure. When someone wants to buy a coin with their little dollar, new coins are produced to meet the demand.

Additional Read: ERC-20 Token Standard 

USDC’S RISE IN MARKET CAP OVER THE YEARS

USDC Market cap | Source: Tradingview

STIFF COMPETITION FOR USD COIN IN THE CRYPTO SPACE

USDC has many competitors, each having its own set of unique features:

  1. USDT(Tether): Tether is the world’s first stablecoin. It offers the stability and simplicity of traditional currency coupled with the innovative nature of Blockchain technology, a perfect combination of Both Worlds. However, it is currently under investigation for fund mismanagement. As of writing, Tether has a total market cap of about $65.8 Billion.
  2. BUSD(Binance USD): BUSD is Binance’s stablecoin project created in partnership with Paxos, a blockchain company that has its stablecoin. BUSD runs on Ethereum, Binance Smart Chain, and Binance Chain. This offers BUSD holders the advantage of sending BUSD around the world with nominal transaction fees. As of writing, BUSD has a total market cap of about $17.5 Billion.
  3. TUSD(True USD): TUSD is the industry’s first regulated stablecoin backed by the US Dollar. Before one is eligible to hold TUSD, they have to first pass know-your-customer (KYC) and anti-money laundering (AML) tests. After this stage is complete, freshly minted TUSD will be wired to the user’s Ethereum address. As of writing, TUSD has a total market cap of about $1.19 Billion.

Additional Read: Crypto Investing Strategy

ROADMAP & VISION

USDC Whitepaper summary: Currently, USDC lives natively on 8 blockchains: Ethereum, Solana, TRON, Flow, Algorand, Stellar, Avalanche, and Hedera. Circle currently has plans to expand the native integration for more blockchains. USDC has also been bridged to many layer-2 blockchains like Polygon, NEAR, etc. It aims to bring native USDC to all the largest blockchain ecosystems in WEB3.0.

CONCLUSION

The exponential expansion of stablecoins in recent years indicates a growing trend of cryptocurrencies being used more and more frequently in everyday life. Unsurprisingly, stablecoins also appeared to have proven to be quite helpful in emergencies, with demand growing as the virus spread and people sought out other options for financial flows during the lockdowns.

An additional argument for stablecoins was the beginning of the Russian invasion of Ukraine earlier this year when holders hurried to change their assets to USDC to stabilize them as the prices of BTC and ETH fell. Overall, stablecoins appear to combine the strengths of both cryptocurrencies and fiat money, namely stability and instant liquidity, as well as speed, ease of transactions, security, and transparency. And given the current course of events, dealers and investors appear to concur that USDC best exemplifies both sets of virtues.

HOW TO INVEST IN USD COIN (USDC) 

Use this three-step process to buy your first USDC token using the CoinDCX, crypto investment app.

  • Sign Up for the CoinDCX account: Enter a valid email address and a user name on the sign-up page. Once the Email Id has been verified, set a strong password to secure your account.
  • Verify the account: You need to complete your KYC, to buy USDC token on the CoinDCX platform. All you need to do is upload the documents and your account will be set up in 15 minutes.
  •  Buy USDC: After the account has been verified, you can deposit any amount of fiat currency you are comfortable with and start your crypto journey!

Additional Read: USDT Whitepaper Summary


Disclaimer: User Generated Content – Original Content created by a member of BITS Pilani, under the consultation of Dr. Amit Dua, Assistant Professor, Computer Science Department, BITS Pilani, Pilani Campus in association with CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Abhishek Das, Harshit Jain


 

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