At its basics, USDC or USD coin is a fully-reserved stablecoin, created to ensure price parity with the US dollar.
The USDC stablecoin lives on the blockchain and is pegged to a fiat currency, as we said - the US dollar. Its aim is to stabilize its value against the market volatility. Of course, USDC is not the only stablecoin we know. An example of another US dollar-backed cryptocurrency is Tether (USDT).
What makes USDC different from other cryptocurrencies is that it cannot be minted. It is available as ERC-20, which is the most used standard for blockchain apps. The USD coin is compatible with many different blockchain networks, including Solana, TRON, Stellar, etc.
How does it work?
Simply said, every time a USD deposit is made, a smart contract creates a USDC that can be redeemed for a dollar.
All USDC issuers must possess the licenses required by the operating jurisdictions. They should also support the fungible exchange and redemption of USDC tokens from other issuers.
USDC are required to hold reserves at a 1:1 ratio to the amount of issued tokens, and must also offer proof of these reserves.
To function as it should, the parties in charge of overseeing USDC and stablecoins must be trustworthy and transparent.
USDC features
The USD coin maintains the same value as the US dollar, which makes it a great option for holding a digital currency without any price risk. Other features of the USD coin include:
Instant global payments - The stablecoin allows users and businesses to accept payments in digital assets. It is possible to transfer money across international borders, as easy as it is to send a text message.
Purchasing goods - Users are allowed to buy different items and services online using USDC.
Lending and borrowing - USDC can be easily lent to people in need without any third party intervention.
USD coin advantages
As we already mentioned, USD coin offers fast payments, and saves users from the high market volatility. It is also audited by a regulated organization, which makes it a transparent stablecoin.
Another great advantage of USD coins is the speed of transaction. While users should wait a long time to send and receive USD, USDC allows instant clearing and settlement of payments.
Moreover, with a crypto wallet, users can quickly make cross-border payments and earn passive income by lending USDC.
USD coin disadvantages
One of the disadvantages of the USD coin is that it doesn’t offer price appreciation opportunities. Investors may incur high transaction and withdrawal fees dealing with the stablecoin.
Furthermore, we cannot say that USD coin is the perfect investment as it may not offer potential price appreciation opportunities. Also, even if DeFi platforms offer more interest for each USDC lent, they are riskier, as evidenced by various crypto heists.
Is USD coin a safe investment?
As we already said, USDC has its advantages and disadvantages. It is subject to regulations and regular audits. However, investing in cryptocurrencies, even in stablecoins, has its risks. For example, the price of the USD coin will never appreciate as it is pegged to the US dollar.
There is never a hundred percent secure investment, especially in the crypto world. That is why we always advise you to do proper research, measure the risks and never invest more than you are willing to lose.
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