Stablecoins are cryptocurrencies that are designed to have a relatively stable price. Typically, investors buy stablecoins to avoid the price fluctuations of other coins like bitcoin.
Many stablecoins are pegged to an asset like the U.S. Dollar, but they can also be pegged to other currencies or assets. Others are called “algorithmic” stablecoins — these coins aren’t necessarily backed by any real external asset, relying on complex financial engineering to hold their value steady.
However, if an algorithmic stablecoin is not designed correctly, it can lose its peg, and its price can fall to zero. This happened recently with Terra — the TerraUSD (USTC) stablecoin lost its peg to the U.S. dollar in May 2022.
USDD on the Tron network also lost its peg to the US Dollar in June. It dropped to a low of 91 cents.
The USDC Stablecoin by Circle
USDC (or “USD Coin”) is a stablecoin issued by Circle. It is a “fully-reserved” stablecoin — this means that every digital dollar of USDC is 100% backed either by cash or short-dated U.S. treasuries.
USDC reserves are held in the custody of BlackRock and BNY Mellon. Each month, Grant Thornton LLP, a large American tax firm, provides third-party audits of the USDC reserve.
A Circle customer can instant redeem USDC in 1:1 exchange for U.S. Dollars through their Circle Account (subject to settlement of funds).
USDC is managed by a consortium called Centre, which was founded by Circle and includes members from Coinbase and Bitcoin mining company Bitmain.
Circle is regulated as a licensed money transmitter under U.S. state law (similar to PayPal and Apple Pay). Circle’s financial statements are audited annually and subject to review by the SEC. See this full breakdown (PDF) of the USDC reserve assets.
In March, Visa announced that it would allow USDC to settle transactions on its payment network.
I recommend USDC over other stablecoins like Tether.