USD Coin (USDC): what it is and how it works

What is USD Coin (USDC)

USD Coin (USDC) is a stablecoin pegged to the US dollar at an approximately 1:1 ratio, among the most important and widely used on the crypto-asset market. It is issued by Circle, a US fintech company, historically in collaboration with Coinbase. It is often used to shelter from volatility and as a stable reference in decentralised finance (DeFi).

Under Reg. (EU) 2023/1114 (MiCAR), USDC is an e-money token (EMT): a category of crypto-asset subject to a specific regulatory regime, distinct from that of crypto-assets not pegged to any currency. Circle was among the first issuers to comply with the European regulation.

How it works

According to the issuer, every USDC in circulation is backed by reserves in cash and short-term US government securities, with periodic attestations by an independent audit firm. USDC is issued on several blockchains and is widely used to settle trades, transfer value between platforms and as liquidity in DeFi protocols.

The smart contract that manages the peg has no maximum issuance cap: the amount of USDC in circulation varies according to issuance and redemptions. Circle recognises the right of redemption at par value (1:1 in dollars).

What USDC is for

USDC is mainly used as a temporary “safe harbour” while operating in crypto, as a payment and value-transfer instrument and as a liquidity base in DeFi protocols. It allows holders to maintain dollar exposure without leaving the crypto-asset ecosystem.

It is important to stress that holding USDC does not in itself generate any return, and that maintaining the dollar peg depends on the soundness of the issuer and its reserves.

What to consider

Unlike more volatile crypto-assets, USDC’s goal is value stability. However, there is a specific risk: under certain market conditions or stress on the issuer, a stablecoin can temporarily lose its peg to the reference value (the so-called de-peg).

For binding information on how it works, reserves and the right of redemption, it is necessary to refer to the White Paper and the issuer’s official documentation (Circle).

EMT notice. USD Coin (USDC) is an e-money token under Reg. (EU) 2023/1114 (MiCAR). The holder has the right, at any time, to redemption at par value (1:1 in dollars) from the issuer (Circle), as provided for by the regulation. A stablecoin can nevertheless temporarily lose its peg to the reference value (de-peg) and does not benefit from deposit guarantee schemes. Holding USDC does not in itself generate any return. For binding information, refer to the White Paper and the issuer’s official documentation. Young Platform does not provide financial advice.