For the last few years, the cryptocurrency ecosystem has been booming. New projects continue to emerge with novel solutions and use cases, presenting investors with new opportunities. Despite these assurances, many remain skeptical of digital assets as a substitute for traditional fiat currency due to their volatility and constant fluctuations, which explains the rise of stablecoins.
Stablecoins were created to address the volatility and frequency with which digital currencies experience price crashes. Stablecoins are digital currencies that are pegged to physical assets. They are tokens that act as a bridge between cryptocurrencies and real-life assets. These assets could include fiat currencies such as US dollars or British pounds, as well as crude oil or gold reserves.
This article will examine one of these stablecoins, the USDC, its applications, and why it has remained a dominant player on cryptocurrency trading platforms and in the blockchain network.
Let’s dive right in!
What is USD Coin (USDC)?
There is a long list of stablecoins that have been developed. USDC is one of the most widely used stablecoins. It is also one of the largest stablecoins and one of the fiat-backed stablecoins widely used by cryptocurrency exchanges.
USD Coin, as the name suggests, is a digital token backed by US dollars. Center Consortium, a non-profit organization, founded USDC. According to Coinmarketcap, it is the sixth-largest cryptocurrency by market share. The purpose of the coin is to create a direct representation of the US dollar on the blockchain, thereby creating price stability.
The USDC operating model is that for every USDC token created; an equivalent 1 USD is saved as a cash reserve. This, however, does not imply that the token is under the control of any central bank or central authorities. This model has increased the popularity of the USD Coin and broadened its use case.
Let’s take a closer look at the USDC’s use cases.
USDC Use Case: Crypto Trading
In the cryptocurrency market, the USD Coin is a popular coin. The majority of crypto platforms chose and popularized cryptocurrency due to its interoperability, openness, and liquidity on the world’s major crypto markets and public blockchains.
USDC is an ERC-20 token that can be directly exchanged for US dollars, which makes it a viable option for the majority of traders. A typical example will be a crypto trader, who trades in BTC and has recently made gains but wants to prevent their gains from market volatility.
In such instances, swapping the gains to the dollar-pegged USDC is a good option against unforeseen market dips as such gains can retain their actual value. It’s simple to create trading pairs in fiat and with other cryptocurrencies such as bitcoin and Ethereum. This enables traders to conduct transactions with the confidence that their gains or losses can be easily tracked in a globally comparable currency.
USDC Use Case: Global Transfer of Value (Cross-Border Payments)
National monetary policies vary significantly between countries, and this has remained a significant impediment to global trade. Regulations governing cross-border payments and the high costs of cash transfers imposed by commercial banks and third-party intermediaries have rendered the traditional money system unattractive.
In its place, USDC offers a viable alternative that enables business owners to easily link their bank accounts or credit cards in order to convert fiat currencies to their USDC equivalents. They can then use their digital wallets to send crypto payments to any part of the world without worrying about regulations, volatility, or restrictions.
Example of Cross-Border Payments in Crypto
A typical example of cross-border payment value of the USDC is for traders who reside in third-world countries where national currencies are known to be prone to devaluation. In this instance, such a trader can get paid for services or goods in USDC. This helps such an individual escape faltering national currency and monetary value loss that comes from inflation.
USDC’s peg to the US dollar aids in the preservation of value and bulk money movement, simplifying cross-border transactions and payments while retaining the US dollar as the standard for international monetary transactions.
USDC Use Case: Lending and Borrowing
The USD Coin has also proven to be beneficial to cryptocurrency lending platforms. USDC can be lent or borrowed against other crypto altcoins on these platforms. The borrowing can be collateralized or overcollateralized depending on the platform.
This means that the equivalent or greater amount of USDC to be lent is deposited on the exchange in exchange for USDC to be released. When the USDC is returned, it is accompanied by its crypto dividends, and the deposited altcoins are released to the borrower.
Because of its stability, interoperability, and ease of conversion to US dollars at any time and from any location, USDC has become a popular choice among crypto lending platforms (accessible on most blockchains).
USDC Use Case: On-Chain Purchases
On-chain marketplaces have also grown in popularity as a result of blockchain technology. These marketplaces are intended to function as online stores that cater to the specific needs of specific ecosystems.
Most on-chain marketplaces use the USD Coin in conjunction with their native tokens (if such exist at all). This paves the way for a wide range of users to easily make purchases on the platforms.
On-chain marketplaces are becoming increasingly popular for NFT products, whose use cases are expanding rapidly with blockchains. All a user has to do is send digital payments for the set crypto price to the seller’s public blockchain addresses. Transactions and modalities can be completed quickly.
The Future for USDC
USDC has developed a comprehensive set of use cases that are available to all cryptocurrency users. This includes everything from facilitating a global payment network to developing a concrete and super-fluid business model that facilitates lending and borrowing while also powering a thriving on-the-chain market economy.
Overall, the USDC’s underlying structure has contributed to its continued relevance on the blockchain and among various crypto adopters.