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Beginner's Guide: What is USD Coin (USDC) and How Does It Work?

Beginner

Altcoins

Stablecoin

Nov 7, 2023

12 min read

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Cryptocurrencies are known for their high level of volatility, as their prices can rise significantly or fall dramatically within a few hours, let alone a few days and weeks. In such circumstances, a solution is needed to maintain the Stable Price of a Coin, while providing users with all the other advantages of Decentralized Options.

In this guide, we will analyze such solutions with a special focus on USD Coin (USDC), a stablecoin issued by Centre Consortium, LLC, consisting of Circle and Coinbase.

What is a stablecoin?

First, a brief overview of stablecoins and how they work. The European Central Bank defines stablecoins as “digital units of value that differ from existing forms of currency and are based on a set of stabilizing instruments to minimize their Price fluctuations against a Currency or a basket of them.”

Stablecoins are a digital representation of fiat currencies on blockchain networks, developed to mimic fiat Price using a stabilization mechanism. This type of cryptocurrency has a stable Price, allowing users to always Redeem one Coin for $1 (or for any other Currency they are pegged to). Additionally, cryptocurrencies can be a tool through which traders can switch to a more stable digital asset when cryptocurrency markets are volatile.