USDC:
Built on the Ethereum blockchain, USDC is one of the most traded stablecoins in the world. It tracks the value of the US dollar.
The cryptocurrency market can still scare those who are not very familiar with it.
The constant fluctuation in prices, for example, makes many people prefer more stable financial assets, such as fixed income.
But there are already digital currencies created to solve this problem, such as stablecoins, designed to track the price of a traditional asset, such as the dollar and gold, and therefore have a more stable value. One of the most traded stablecoins in the world is USDC (USD Coin), considered a digital version of the official US currency.
USDC is focused on transparency and has its financial reserves audited by independent firms, which helps to gain the trust of users.
What is a stablecoin and how does it work?
Unlike other digital currencies, whose value can vary significantly, a stablecoin like USDC is designed to keep its value as close as possible to the asset used as reference.
The literal translation of the name stablecoin is "stable currency." So, as the name suggests, a stablecoin is a type of crypto asset with low volatility. In other words, its price does not fluctuate much over time.
This high variation in the price of cryptocurrencies is, in fact, one of the characteristics that drives many people away from these assets. After all, the chances of making a lot of money are proportional to the risks of losing.
Moreover, this constant rise and fall in the value of digital currencies makes their adoption as a means of payment difficult. This is because a price established in bitcoins, for example, could become outdated very quickly.
Stablecoins emerged as an alternative to the high volatility of common cryptocurrencies.
For a stablecoin to truly have value, it is very important that the issuer of the cryptocurrency holds reserves of the asset used as reference in an amount equal to or greater than the digital currencies issued.
In the case of USDC, for example, Circle, the company responsible for the cryptocurrency, issued $24.4 billion in digital currencies backed by the US dollar up until the time this text was finalized, and therefore has a financial reserve of the same amount held in traditional financial institutions.