USD Coin (USDC) is a stablecoin designed to maintain a stable value, as it is pegged to the US dollar (its value is pegged one-to-one with the US dollar). This is possible because each USDC token in circulation is backed by Treasury bonds and US dollar reserves deposited in regulated financial institutions. In this article, we will explore the creation of USD Coin, also known as USDC.
Creation of USDC
To understand the origin of USDC, we must first go back to the origin of Circle Internet Group, Inc., which was founded by Jeremy Allaire and Sean Neville in October 2013.
Although a stablecoin pegged to the US dollar (the USDT cryptocurrency) already existed in 2018, Circle announced the USD Coin (USDC) stablecoin on May 15, 2018, and then officially launched it in September of the same year through the Centre Consortium.
Circle’s goal was to develop and offer a stablecoin that was fully backed by and pegged to the value of the US dollar, yet was more transparent, accessible, and regulated, allowing it to leverage blockchain technology and the financial stability that characterizes the US dollar (due to its 1:1 ratio).
This led to the creation of USD Coin (USDC), a “digital dollar token” that serves as an alternative to other stablecoins, bridging the gap between traditional finance and blockchain technology, primarily due to its price stability and regulatory compliance.
Why does USDC maintain 1:1 stability with the US dollar?
USD Coin was created by issuing an ERC-20 token on the Ethereum blockchain. The principle is that each USDC cryptocurrency token is backed 1:1 by US dollars or short-term Treasury bonds held by the Federal Reserve.
To maintain this 1:1 ratio, when a user deposits a certain amount of US dollars (USD) on the Circle platform or through authorized issuers, the equivalent amount of USDC tokens is immediately “minted” and released, which can then enter circulation on blockchains such as Ethereum, Solana, and others.
If the user’s transaction involves redeeming USDC tokens, they are “burned,” and the equivalent amount of USDC is sent back to the user’s bank account.
Therefore, by consistently “minting” and “burning” USDC tokens related to the corresponding transaction (USD deposit or USDC redemption, respectively), the 1:1 parity with the US dollar can be maintained, as this mechanism ensures that the amount of USDC tokens always matches the actual reserves of US dollars. However, to verify these reserves, build trust, and increase transparency, third-party audits and certifications are periodically conducted and publicly shared.
We should highlight that Circle provides monthly certifications from prestigious accounting firms (such as the multinational Deloitte), which are responsible for verifying that the reserves match the USDC tokens in circulation.
Regulatory Compliance
One of the operational foundations on which USDC operates is transparency and regulatory compliance, which fosters greater user confidence by providing a stable and regulated token. At this point, we should emphasize that, although the USDC token is considered a digital version of the US dollar, due to its 1:1 parity, USDC is not issued by the United States government. Although it is a token that operates with blockchain technology, it is issued by companies like Circle, which comply with regulatory requirements and financial auditing standards. Therefore, the stability of USDC is a value that depends on the full backing of US dollar reserves, not government decrees.
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