USDC – What is the dollar token, how does it work?

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USD Coin (USDC) is pegged against the US dollar on a 1:1 basis. Every unit of the cryptocurrency in circulation is backed up by US$1 held in reserve, in a mix of cash and short-term U.S. Treasury bonds.


It was launched to reduce the volatility associated with cryptocurrencies.


What sets the so-called stablecoin apart from other cryptos is that it is pegged to an existing currency like the U.S. dollar or the euro.


The Centre Consortium launched USDC in 2018. Currently, USDC is functional on five major blockchains – including Ethereum, Algorand, Tron, and Stellar – with the centre working round the clock to make the Stablecoin available on 10 more distributed ledger technology networks soon.


The consortium has two founding members one is Circle, a peer-to-peer payment services company, and the other is Coinbase, the cryptocurrency exchange.


Over the summer there was some confusion over the composition of the USDC peg after auditors Grant Thornton disclosed that cash made up just over 60% of USDC’s reserves, while the remaining 40% was backed by various forms of debt securities and bonds.


Circle later clarified that it was changing the makeup of USD Coin’s reserves once again, with just cash and the US treasury bonds underpinning the Stablecoin.


Currently, USDC is the second-largest Stablecoin globally, with US$27bn worth of coins in circulation.


Incidentally, Tether, the largest Stablecoin with US$75bn in circulation, has drawn scrutiny from regulators amid fears it doesn’t have enough assets to support its peg to the fiat currency.


Earlier this year, tether’s issuer revealed that just 2.9% of its reserves were held in cash.


The vast majority of its reserves were made up of commercial paper, a form of unsecured, short-term debts that are riskier than government bonds. It sparked fears that a sudden mass redemption of tether tokens could destabilize short-term credit markets.


There are increasing calls for Stablecoin issuers to provide frequent breakdowns of their reserve compositions to address opaqueness in the fast-growing crypto industry.


Both Tether and Circle have since released reports breaking down their reserves.


Circle said: “Deepening its commitment to transparency” and “exploring new opportunities to collaborate with the community.”

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