Friday, February 3, 2023
  • USD Coin is a cryptocurrency whose value is directly tied to the US dollar. This makes it a stablecoin with a theoretical value ratio of 1:1 to the US dollar
  • Most crypto traders avoid trading or investing in USDC as a means to get profit. Instead, they opt to purchase the stablecoin, store it on an exchange platform or a crypto wallet, and then later use it to fund various purchases within the digital asset market
  • Both USDC and Tether(USDT) are stablecoins that contribute to stabilizing cryptocurrency volatility

Cryptocurrency volatility is among the few hurdles most crypto miners and traders face daily. The constant fluctuation in each coin’s value is why most African countries have rejected the use and incorporation of cryptocurrency into their economies.

The digital asset market has gained plenty of highs and lows because it is difficult to peg an exact value on a digital currency. This constant turmoil led to the creation and use of stablecoins. Stablecoins are simply cryptocurrencies that attempt to peg their market value to real-world assets such as gold, silver and fiat money.

There are currently two leading stablecoins today, Tether(USDT) and USD Coin. We previously elaborated on and discussed the basic concepts of Tether. Today, we will look at its counterpart or competitor, USD Coin.

What is USD Coin

As its name suggests, USD Coin is a cryptocurrency whose value is directly tied to the US dollar. This makes it a stablecoin with a theoretical value ratio of 1:1 to the US dollar.

It is critical to note that USDC is a token that generally acts as a bridge between fiat currencies and electronic coins. This means that it is not a blockchain network like Bitcoin or Ethereum; it is flexible and accommodated by different platforms in the digital asset market.

Also, Read Tether: the stablecoin deeply rooted within Africa’s crypto space.

The stablecoin first premiered in September 2018 under a consortium called Centre. Circle and Coinbase are companies that own Centre and run USDC on blockchain technology.

The stablecoins main agenda is to curb cryptocurrency volatility to provide a stable value throughout time. This means that Bitcoin’s value can decrease or rise by any percentage within the digital asset market, but the USDC will always remain at the same value. The only theoretical way to affect its value is when the real asset pegged to it is also affected.

The concept of such a stablecoin has led to its mass adoption as a replacement for traditional currencies, effectively bypassing financial institutions without sacrificing the stability and predictability of their cash.

How does the USDC stablecoin work

Crypto traders and miners have generally worked with ordinary crypto coins and have experienced both loss and profit because of cryptocurrency volatility. USDC stablecoin has brought in a new concept in the crypto world.

USDC is also a fiat-collateralized stable coin because the US government backs it with cash and short-term bonds as collateral. This ensured that each USD token within the digital asset market retains its value such that for every stablecoin n circulation, $1 is held in collateral.

what is usdc and why is it important in the digital asset market?

The USDC stablecoins aim to curb cryptocurrency volatility.[Photo/Swissborg]

Because of its constant value, it is theoretically unlikely that the value will drop, so its value cannot also increase. Then begs the question, how then does a crypto trader use USDC?

Most crypto traders avoid trading or investing in USDC as a means to get profit. Instead, they opt to purchase the stablecoin, store it on an exchange platform o a crypto wallet, and then later use it to fund various purchases within the digital asset market. 

Compatible blockchain networks.

Since USDC is a coin, it does not have its blockchain network. This allows the crypto token to expand its reach in working on different blockchains within the digital asset Market. Here are some of the networks compatible with USDC.

  • SOLANA: This is the fastest-growing blockchain in the world today. It offers a plethora of projects such as NFTs, DeFi, Web3 etc. Its native cryptocurrency is SOL and was built based on Ethereum.
  • Ethereum: is the second largest leading cryptocurrency today. It is a decentralized blockchain platform that establishes P2P networks that function using smart contracts. Its native cryptocurrency is ETH.
  • Stellar: This is a blockchain network whose primary purpose is facilitating exchanges and transactions for forex, crypto and other facilities. Its native cryptocurrency is LUMEN.
  • Tron: is a cryptocurrency platform best known for its exceptional transaction speed and lively CEO. Developers behind the Tron Blockchain network are firm believers that decentralization is the key to free and independent internet, a concept Web3 is ushering in. Its native cryptocurrency is TRONIX.
  • Algorand: is an open-source, decentralized blockchain network within the digital asset market that offers a two-tiered structure. Implementing a unique variation of the Proof-of-Stake(PoS) consensus mechanism has contributed to its increased transactions and finality speeds. The Algo is the native cryptocurrency used within the blockchain ecosystem.

Difference between USDC, USDT and other stablecoins.

Both USDC and Tether(USDT) are stablecoins that contribute to stabilizing cryptocurrency volatility. Stating the difference between them is like finding the difference between different-sized eggs. US dollars back them both, but because they are under different companies, they have very few differences.

The first noticeable difference is that Centre owns USDC while Tether Limited has claims on USDT. This affects the applicability of each stablecoins. Each has similar blockchain companies that are compatible, but they differ slightly. Tether has a somewhat different range than USDC.

Also, Read Blockchain technology; The basis of Kenyan applications.

Circle stated another difference within their site, “Since the US government backs up USDC, its reserves are in the custody of leading US financial institutions such as BlackRock and Bank of New York Mellon.

The stablecoin has also presented vast levels of transparency and proactivity in creating safeguards. It conducts monthly audits that ensure no suspicious activities undergo without them knowing. This is because its issuance is regulated according to US state money transmission supervision.

Final Remarks

Purchasing USDC generally won’t provide long-term or short-term investment returns for crypto traders. However, it does offer additional benefits for those who are business oriented. Its stable nature allows businesses to flourish within the digital asset market by providing faster transmission and a global reach. This saves time, eliminating the need for banks. Stablecoins are still a new concept in Africa, but there have been improvements, such as CDBC.

Read: Africa: stablecoins offer an efficient solution for cross-border remittances

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