By Royal Armani
Stablecoin was designed to eliminate the volatility issues that the majority of cryptocurrencies endured. It offers investors price stability either via pegging with specific assets or using algorithms to tweak their supply and demand ratio.
Primarily, trading platforms that did not offer fiat currency trading pairs accepted stablecoins to buy cryptocurrencies. Stablecoins are a programmable version of fiat currencies. They use blockchain technology and can communicate with block-chain based smart contracts and apps.
In this post, let’s discuss how USDC [United States Dollar Coin] is advantageous over USD [United States Dollar]. USDC or USD Coin is a stable coin, while USD or US Dollar is a fiat currency.
Popular cryptocurrencies are highly volatile making the prices swing wildly in any direction. This impacts their use of the medium of exchange [sales and purchase]. For currency usability, an asset has to act as a medium of exchange. It means to maintain and store its value to allow commercial activities. Stablecoin is designed to be a medium of exchange. It fills in the gap between cryptocurrencies and fiat currency.
As the value of USDC is pegged with USD, investors know their purchasing power will not change in a short time. They can use USDC to purchase goods or services. As USDC is pegged with USD its price is stable. It means 1 USDC in your crypto wallet is equivalent to 1 USD. To store coins, you need a wallet because it is a digital form of currency. You can learn more about cryptography and cryptocurrencies on ZenGo X.
Advantage of USDC over USD
- USDC is a decentralized digital currency, which allows anonymous and instant payment to anyone across the world. It uses encryption keys, which protect the trader’s identity.
- Decentralized means it uses a peer-to-peer network, so there is no need for a medium or financial institution [like banks]. USD is governed by government authorities and banks but USDC is not issued or regulated by monetary authorities.
- As USDC is collateralized at 1:1 with US Dollar, traders that bought it can sell USDC and redeem $1 anytime.
- USDC leverages the benefits of cryptocurrency including transparency, privacy, low transaction charges, security, quick trades, immutability, and digital wallets without losing the guarantee of stability and trust that accompanies using USD currency.
- There is a lot of underbanked and unbanked population that can benefit from stablecoins or USDC payments. Migrant workers can transfer money to their native country at a low cost and quickly.
- Recipients can store their coins in a USDT wallet without the need for a bank account or fears about high volatility.
- Businesses that need to pay international suppliers or employees can use USDC over USD for allowing a more secure, quick, easy, and cheap cross-border payment method.
- Non-US investors wanting to add US Dollars to their investment portfolio can add USD Coins.
- Non-US investors worried about local currency inflation can hold USDC to protect their money value.
How does USDC maintain 1:1 collateral with USD?
When you purchase 1 USDC using a fiat currency then the fiat currency is stored and deposited at $1. A new USDC is then minted. If you sell the USDC in an exchange for a fiat currency, then the USDC is burnt the moment fiat currency gets deposited in your bank account.
