What Is USD Coin?
USD Coin lets you transfer money quickly and easily all over the world. While this statement could apply to many cryptocurrency projects, USD Coin has a special ability: it’s a stablecoin. This coin aims to maintain a stable price of one US dollar per token. Even its name is a subtle nod to its USD origins. It has a total supply of 335,934,742 USDC, although this may change, as discussed below in the “How Does USD Coin Work?” section.
This should mean (in theory) that $500 of USD Coin purchased today will be worth $500 at any point in the future. Sure, it won’t go up in value and net you 10,000% returns, but it won’t go down and crush your hopes of a Lambo.
Like traditional fiat currencies are often backed by a central bank’s gold reserves (know as the gold standard), each USD Coin gets backed by a dollar in Coinbase’s bank account. If you live in the United States, you can exchange one USDC for one dollar into your bank account, with no fees!
Coinbase launched USD Coin in September 2018 in partnership with the financial partnership company Circle. Coinbase state:
Our mission is to build an open financial system for the world. As part of this mission, we want everyone to enjoy the stability of the world’s fiat currency, the US dollar. USD Coin allows unbanked and under-banked individuals in any country to hold a US dollar–backed asset with nothing more than a mobile phone.
Coinbase is aiming to dominate the market with USD Coin. A cryptocurrency that isn’t volatile, and is not subject to the wild swings experienced by most other projects is an enviable project. Countries with hyperinflation may love to buy into a project linked to the US dollar.
Coinbase has partnered with Circle to found CENTRE. This is an open-source technology project responsible for governing USD Coin. This organization helps USDC to act as an on-ramp from USD to USDC and they commit to financial transparency. Not only do they hold the full reserves for every USDC, but they provide monthly reports on their holdings, and follow all required licenses and regulations.
How Does USD Coin Work?
The USD Coin smart contract lives at the smart contract address 0xa0b86991c6218b36c1d19d4a2e9eb0ce3606eb48. There are more than 32,000 accounts with over 360,000 combined transactions at the time of writing.
The CENTRE white paper covers the technical details for USD Coin and any other future stablecoins not yet issued or even designed. While there’s nothing new about the code, CENTRE takes a unique approach to USD Coin itself.
CENTRE run an affiliate system of sorts to handle the minting of new coins. Suitable financial institutions can apply to handle funds and mint new USDCs. Once authorized, people like you and me can transfer USD to these accredited institutions, and they will, in turn, mint new USDCs. As every USD Coin gets backed by US dollars, they will have to protect these funds to follow CENTRE’s regulations.
If you want to exchange USDC back to USD, the opposite happens. The financial institution “burns” your coins, removing them from the market. They then transfer the USD funds back to your bank account from their ring-fenced reserves.
This system of minting new coins whenever someone buys in and burning them when someone cashes out means the total market supply is in a constant fluid state. In theory, there will always be people buying and selling, in roughly equal numbers, so the total supply will stay roughly the same. In reality, it may experience peaks and troughs, whereby users trade into USDC during market turmoil and trade back out when the situation improves.
Because every single USDC gets backed by a real US dollar, the potential for speculation is minimal. As you can always exchange one USDC for one dollar, it doesn’t make sense to pay more than a dollar for one USDC. If you pay $2, $5, or $10 for one USDC, you will still only get $1 for it when you cash it in. Equally, You may make a profit paying less than a dollar for one USDC, but nobody is selling at this price! This tight coupling to the dollar is what keeps the price in check.
What’s USD Coin’s Future Potential?
USD Coin has massive potential. The ability to quickly and easily convert crypto to US Dollars and back again with zero fees is a game changer. While it may not be fee-free forever, it’s looks set to continue at this rate for the short to medium term future.
Coinbase is a massive company, turning over more than $1.3 billion last year, with close to $250,000 in profit. Whether you believe their efforts are altruistic or not almost doesn’t matter. Coinbase has no reason to see this project fail—they want it to do well!
You only have to look at Tether and the controversy with that project to see that the market is crying out for a stablecoin it can rely on. Tether continues to live in the top ten of projects by market cap, despite all the accusations of fraud, shady deals, and countless other deceptions.