Since these cash are tied to an asset, often a fiat foreign money just like the U.S. greenback, they’re believed to be extra “steady” than their considerably extra unstable crypto friends. It’s this perceived sense of stability that makes stablecoins a gorgeous possibility for a lot of traders seeking to play the digital coin market with out the ups and downs.
Stablecoins have been round since 2014, however their recognition has soared over the previous 12 months, pushing their mixed market cap previous the US$100 billion mark in 2021. This fast improve boosted the visibility of one of many main constituents of the stablecoin market: USD coin (ticker image USDC), the eighth-biggest cryptocurrency by market cap—at the moment sitting north of US$41 billion, as of Dec. 8, per CoinMarketCap.com.
The coin owes its sharp rise into the general public consciousness to fee processing large Visa, which introduced in March 2021 that it will assist transaction settlement utilizing USDC. The transfer immediately raised the coin’s profile and enhanced its validity. If this piques your curiosity about stablecoins, right here’s a more in-depth have a look at USD coin, one of many best-known stablecoins on the market, and the way Canadian traders can purchase it.
What’s USDC?
To know USD coin, it helps to know what stablecoins are and the way they perform. Stablecoins are privately issued cryptocurrencies whose worth is anchored to an underlying fiat foreign money or commodity. For instance, USDC is pegged to the U.S. greenback on a one-for-one foundation.
“Stablecoins enable an investor to purchase the identical quantity of stablecoins utilizing the identical quantity of fiat foreign money—for instance, US$100 for 100 USDC,” says Jeremy Cheah, affiliate professor of crypto-finance and digital funding at Nottingham Enterprise College.
Likewise, you possibly can redeem US$100 with 100 USDC with no charges. USDC, subsequently, is backed by “totally reserved belongings equal to the quantity of USDC in circulation,” he notes.
As a result of stablecoins are steady in worth, they’re extra sensible to make use of as cash. “The worth of different cryptocurrencies is unstable, and most of them are usually not backed by reserves,” says Cheah. “Whereas different cryptocurrencies could possibly be used for speculative functions, stablecoins have better potential for use for transactional functions.”
Stablecoins are sometimes used as a refuge when a market downturn is anticipated. “USDC and stablecoins typically are extraordinarily helpful as a result of they provide the advantages of crypto with out the usual volatility related to bitcoin or ethereum,” says Ivan Payan, chief working officer at Olyseum, an leisure manufacturing firm that offers in digital belongings. As of Dec. 8, 2021, over 41 billion USDC are in circulation.