USDC is the second largest stablecoin with a market capitalisation of $53 billion. It is pegged 1:1 with the US dollar, meaning that the value of one USDC should be equal to $1.
In the volatile world of cryptocurrencies, stablecoins offer the closest thing to fiat-like stability. They are used in transactions and trades as their value remains more or less constant. This is because they are pegged to a stable asset, such as a fiat currency or a precious material. Hence the name ‘stablecoin’.
The most common stablecoins used today are USDT and USD Coin (USDC), which are both pegged to the US dollar and operate with a cash reserve to match the circulating amount of tokens. In this article, we learn about USDC and why it is predicted to become the leading stablecoin in the world in the coming months.
What is USDC?
USDC is the second largest stablecoin with a market capitalisation of $53 billion. It is pegged 1:1 with the US dollar, meaning that the value of one USDC should be equal to $1. It was launched in 2018 by Centre, a consortium formed between the crypto payments company Circle and Coinbase, a leading cryptocurrency exchange.
How Does USDC Work?
USDC is a collateralised stablecoin. This means that, for every USD Coin that is minted, a US dollar is held by Circle either in cash reserves or other liquid instruments. This allows the USDC to maintain its $1 valuation at any given time. Thanks to this mechanism, you can also choose to exchange your USDC for a real dollar whenever you want.
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For every USDC that is burned, a dollar is freed up from the cash reserves. This unique ability to bring stability into the volatile world of cryptocurrency has catapulted USDC to worldwide acceptance, with a current circulation of more than 54 billion tokens.
USDC is predicted to topple Tether (USDT) in the coming months
When it comes to stablecoins, USDT has always been the clear winner. However, recent events and developments have mixed things up. In the past six months, USDC has grown over 40 percent in market cap, and for the first time in stablecoin history, USDT has a market share of less than 50 percent.
To put this in perspective, as of August 2020, the market cap ratio between USDT and USDC was above 9. In July 2022, it dropped to 1.20, the lowest it has ever been during this period. This year alone, Tether’s market cap has fallen from $78.4B at the start of the year to $66.9B at the time of writing.
Amid falling market share, USDT also suffered a de-peg during the Terra-Luna fiasco. Speculations that USDT tokens were not 100 percent backed by cash and other traditional assets caused a dip in its valuation. The stablecoin fell to a low of $0.95 in May and could only regain its $1 valuation in July. Such a prolonged de-peg is a significant cause of concern for a stablecoin.
This is not the first time USDT has lost its peg with the dollar. In 2018, its value dropped as low as $0.85 on Kraken due to rumours that BitFinex (one of Tether’s sister companies) had become insolvent. In contrast, USDC has lost its peg twice since 2018, both times falling to $0.97. The first de-peg occurred during the COVID-19 pandemic and the second during the Terra crash. However, the token quickly recovered its $1 valuation in both instances.
Reasons for USDC’s surge in popularity
Circle, one of the founding members of USDC, is open to weekly audits, is SEC compliant and holds its cash reserves and liquid financial instruments with the top guns in finance. Circle is also audited by Grant Thornton, one of the top global accounting firms.
In contrast, USDT provides quarterly attestations of Tether reserves and is audited by UK-based mid-tier accounting firm MacIntyre Hudson (MHA). However, in June 2022, Tether CTO Paolo Ardoino committed to having their reserves audited by one of the top 12 accounting firms in the near future.
Moreover, Circle has taken special care and efforts to ensure that USDC is open source and available on all the major blockchains. This helps developers easily incorporate USDC as a payments protocol on their websites and apps through a readily available API. Businesses and entrepreneurs will find it much easier now to transact across borders and let their international businesses flourish without someone taking a piece of the pie as transaction fees.
USDC has emerged as the go-to stablecoin for individuals and businesses alike because of their global availability, acceptance and trust that comes with the backing of real USD reserves that are checked and updated every week.
As part of the organisation’s founding principles, the cash reserves can never be used for any company-related purpose or functioning, and Circle has managed to ensure that the principle is upheld. Whether in 3 months or more, USDC will soon gather more popularity as a free and fair flow of money and could be crowned as the new king of the stablecoin realm.