Recently, there has been a lot of media coverage surrounding the USD Coin. This stablecoin is the result of a collaboration between Circle and Coinbase.
At the moment, the stablecoin ecosystem is among the most exciting in the cryptocurrency world. TrueUSD, Paxos standard and the Gemini Dollar are among other stablecoins that have released their own coins.
These projects all try to capitalise on the lack of trust in Tether’s stablecoin (USDT). All of these projects have the same goal, which is to maintain a 1:1 dollar peg. However, they approach it slightly differently.
Take a closer look at USD Coin to see what it means for the market of stablecoins.
USD Coin Overview
Circle Internet Financial and the huge U.S. based cryptocurrency Coinbase have announced their support of the USD Coin. This stablecoin was created together with Coinbase. Circle, which owns the competing cryptocurrency exchange Poloniex, is one of cryptocurrency’s most well-funded companies. With a value exceeding $3 billion it has investors such as Goldman Sachs and Baidu.
Circle will instead issue USDC. The USDC is each backed up by fiat U.S. dollars held in reserve accounts. There is an overall supply of USDC just above $190 billion.
Each USDC is backed by one U.S. Dollar, so the USDC value will not move much from that of the U.S. Dollar. This means investors can always buy or sell USDC at $1.
USDC is compatible with ERC-20 and was developed on Ethereum’s blockchain. The stablecoin can now be found on six other blockchains including Polygon PoS (Polkadot), Base, Polkadot NEAR, Optimism, and Cosmos.
It was launched on Ethereum to allow for rapid USDC transfer on the Ethereum network. This also makes USDC easier to exchange and store, thanks to the Ethereum blockchain. Circle founders Jeremy Allaire, and Sean Neville stated:
Coinbase and Circle have a shared vision for an open, global financial system based on blockchain technology and crypto rails. To realize this vision, industry leaders must collaborate in order to develop interoperable standards and protocols.
USDC has the distinction of being Coinbase’s first stablecoin. Circle released the USDC coin back in September but it wasn’t until Coinbase listed it that it gained traction. Since then, the currency has risen to become one of the most valuable cryptocurrency. According to Coinmarketcap.com, it ranked the 26th in market cap as of 12 December 2018.
Coinbase, the company that will issue USDC, will also be the platform users can use to convert their fiat currency to USDC. Coinbase facilitates USDC transactions and allows them to move from fiat back to cryptocurrency.
Coinbase & Circle Collaberation
Coinbase and Circle are the two largest blockchain companies. The USDC stablecoin launch shows their commitment to the future of crypto economy, even though Bitcoin’s price has been in decline throughout 2018.
USD Coin was one of these bets and it has so far proven to be a success. The support from the biggest U.S. crypto exchange was certainly helpful. Coinbase refers to the stablecoin “fundamentally different” It is also only the second ERC-20 token listed, with 0x (ZRX) being the other. The other ERC-20 token is the newly listed 0x(ZRX).
Bitcoins have been volatile ever since the end of 2017, when the price was close to $20,000, and even earlier. The same goes for altcoins or other cryptocurrencies than Bitcoin. Due to their volatility, cryptocurrencies are not suitable as payment methods.
The value of a stablecoin is pegged 1:1 to that of the U.S. dollars. It is this 1:1 relationship that gives stability to the coin and allows it to be used for payments. No longer do users have to worry that rapid and massive fluctuations in value will affect their payments or earnings. USDCs are backed up by U.S. dollars in banks and audited regularly. It is possible to trust the stabilitycoin’s value will always remain $1.
The U.S. Dollar as a Backing
The USD Coin, as I have said before, is backed by 100% real U.S. Dollars. These U.S. dollar are stored in accounts of reserve and they are audited regularly to ensure that the reserves match those used for the USDC.
Asiff Hirji, Coinbase’s President and COO at the Money 20/20 Conference in Las Vegas:
“We are issuing stablecoins backed 1:1 with the U.S. dollar, completely audited, completely transparent. We think this is a key step toward unlocking innovation in crypto.”
Stablecoins are backed up by fiat currencies and designed to have minimal volatility.
Tether, the world’s first and most popular stable coin, broke away from the dollar earlier this year after it was surrounded by controversy. Tether’s price dropped to $0.91 after rumors spread that Bitfinex Exchange, a Tether-related exchange, would be insolvent.
Tether is a controversial cryptocurrency due to its lack of transparency and its links to Bitfinex and Bitmain. There are also questions about the amount of U.S. Dollars that Tether holds in reserve.
Michael Novogratz, a billionaire Bitcoin enthusiast and entrepreneur said after this recent controversy that Tether needs to be more transparent. He also said that he felt “Tether didn’t do a great job in terms of creating transparency,” It is also important to note “the concept of stablecoins makes sense.”
USD Coin Basics
Coinbase Pro users and Coinbase prime customers can buy or sell USDC from any region. The Coinbase platform, as it stands today, only offers USDC for those who are based in the United States. New Yorkers and residents of other states have been excluded.
Users can purchase and sell the stablecoin through Coinbase’s mobile Android and iOS applications. The USDC tokens are available in the Coinbase wallet once purchased.
The transaction fees for credit and debit cards are not waived when USDC is purchased with USD in a Coinbase wallet, but if the USDC was bought from a Coinbase account using USD.
Coinbase allows users to send USDC tokens back to Coinbase. However, they can only do so to the USDC account in their Coinbase accounts. Coinbase won’t be able recover tokens sent to the incorrect address. It is a standard practice for cryptocurrency. Before sending coins, always triple-check the address.
USDC has been listed recently on several other exchanges. They are currently listed on 36 exchanges in an effort to diversify stablecoins. USDC has recently been listed on Binance Exchange and this will have no doubt a major impact on adoption.
USDC Use Cases
This is the first and most obvious case. Two Ethereum wallets, since it is an ERC-20 Token, will be able send or receive USDC anywhere in the world at any hour of the day.
The same applies to small business payments as well as ecommerce transactions. Because the USDC is a stablecoin, consumers can hold it and use it without having to worry about its value changing rapidly.
The USDC ERC-20 will become more useful as the blockchain ecosystem expands. The number of blockchain-based apps, exchanges and games is already large, but it will explode over the next few years.
It can be used in any Ethereum-based app. This will be extremely helpful as Ethereum-based games and apps grow.
A stablecoin, like USDC, is also beneficial to fintech companies and software developers because it simplifies programming. Stablecoins that have a relatively constant value allow any application to send or receive USDC easily via smart contract.
USD Coin is not a substitute for fiat currencies like the U.S. dollars. The USD Coin is not a replacement for the U.S. dollar or other fiat currencies. Instead, it’s a means to bring fiat money into cryptocurrency. Some proponents say that the combination between fiat currency and cryptocurrency will be quicker and better than existing payment rails.
You can also read our conclusion.
It’s not surprising that new stablecoins have emerged in the wake of the Tether drama. USD Coin is expected to be one of top stablecoin offerings with Coinbase’s and Circle’s backing.
USDC’s reach could allow it to replace Tether in the future as the top stablecoin. However, this will take time due to the connections between Bitfinex, Bitmain and Tether. USDC is likely to overtake Tether as the most popular stablecoin if Tether continues to refuse to disclose its bank details or accept an audit.
The volatility of cryptocurrencies has kept them from being used in daily commerce. Stablecoins, on the other hand, are fundamentally distinct and may be the start of a new revolution in which physical currency is replaced by digital currencies.