Back to Series

Cryptocurrencies

An introduction to Circle and the USD Coin

Haven't heard about the Coinbase backed stablecoin? In this guide we provide an introduction to Circle, Coinbase and the USD coin

The USD coin was created as a collaboration between Circle Internet Financial and Coinbase. In essence, the USD coin is a stablecoin that is pegged to the US dollar.

What is a stablecoin?

Cryptocurrency markets are infamously volatile and are subject to change at any point. This often deters investors and traders, since they do not want to lose money. This is where stablecoins are useful. They are pegged to fiat currency, meaning they should always be on a one-to-one basis with the US dollar, as an example.

This helps achieve stability for investors and traders. If you own Bitcoin but the price is dropping, you could trade your Bitcoin for a stablecoin. This helps ensure you don’t record further losses on your crypto funds. Another benefit of using a stablecoin like the USDC is to save time withdrawing and depositing fiat.

The Centre Consortium

Circle and Coinbase have teamed up to create the Centre Consortium. The Centre Consortium has created an open network protocol which allows developers across the globe to make contributions. It includes support for currency transmittal, trust and identity features, and rules for settlement. The intention of the Centre Consortium is to encourage mainstream adoption of stablecoins.

Centre stablecoins are issued by regulated and licensed financial institutions that hold the full reserves of the equivalent fiat currency.  Issuers are mandated to report their US dollar reserve funds, with Grant Thornton LLP publishing a monthly report on the holdings. In its December 2018 report, Grant Thornton LLP revealed that the amount of issued and outstanding tokens clocked in at 251,211,148 USD coins. The number of US dollars held in custody accounts matched this figure at $251,211,209. (While the token is pegged to the dollar, sometimes this figure can rise to $1.01 or similar).

How to acquire USD tokens

To acquire USD tokens, you have two options. Firstly, you can create a Circle USDC  account and purchase USDC using US dollars. Or, you can acquire the token from Coinbase. If you purchase USDC with US dollars from a bank account or Coinbase crypto wallet, you won’t be subject to paying fees. However, individuals completing  any purchases on a credit or debit card will still be liable to paying a transaction fee. Coinbase customers who use web-applications or mobile devices can also purchase USDC.

Registering with either Coinbase or Circle will require you to complete Know-Your-Customer and Anti-Money Laundering checks. These tests are commonplace in the financial world as they are needed to assess a customer’s risk of committing illegal activities.  You will also need to provide extensive documentation to prove who you are. Again, this is a common practice and Coinbase completes these checks on any customers joining their service.

How to use the USD coin

Coinbase is the platform that customers will be able to use to make deposits. Coinbase Pro and Coinbase Prime customers can also use the USD coin. Alongside the deposits, customers can also convert fiat into USD tokens and facilitate transactions using the token.

Since the USD coin is an ERC 20 token, owners can freely use Ethereum wallets to send and receive the coin. This is useful for people as it means that both small and large transactions can be completed with relative ease and speed. Another attraction of the token being ERC 20 compatible is that once the Ethereum blockchain ecosystem expands, so too will the use for the USD coin.

If you decide you no longer want to hold USD tokens, you can send them back to your Circle USD accounts. Once done, the relevant amount of US dollars will be wired back to the bank account you initially linked with Circle.

Want to know more about stablecoins? Discover more about the risks and benefits of using them.

 

Recent Guides

What is HIVE blockchain?

Blockchain technology is disrupting industries across the world – but with so many companies utilising the technology it can be difficult to understand them all. HIVE blockchain has previously been...

An overview of the POA network

The POA network is an open-source project designed to be a public side-chain of Ethereum – though, it isn’t just a side-chain implementation. The POA network was designed to be...