Content of the material
- What Are Stablecoins?
- USDT vs USDC
- Trading pairs
- Potential regulation?
- What is USDC?
- Get the BlockCard for USD Coin
- Understanding USD Coin
- Is My Voyager Deposit Federally Insured?
- Are There Any Risks of Investing in USD Coin?
- Is Earning Interest on USDC Worth It?
- Why are there so many USD stablecoins?
- What type of stablecoin is USDC?
- Earning a yield on your stablecoins
- Is Voyager Safe to Use?
What Are Stablecoins?
Stablecoins are tokens that are tied to an outside asset, like the U.S. dollar or gold. This allows for the price to be stabilized, as the name suggests. The coins are backed by the outside asset, typically USD, so there is little risk involved. However, some stablecoins are collateralized by other cryptocurrencies, increasing the risk. Stable coins typically do not move very much. In the case of USDC, it does not fluctuate at all. One USDC is always $1 and is backed by several financial institutions. Stablecoins are collateralized coins that offer stability in an otherwise volatile market.
USDT vs USDC
While USDT is used more frequently for trading and payments, USDC is often described as a safer stablecoin since Centre makes a greater effort to comply with audits and governmental regulation, and has more transparent, fully-backed reserves.
Both USDT and USDC are popular choices to be used as trading pairs on DeFi (decentralized finance) protocols. With USDT’s 4-year head start, they have long been the most widely-used stablecoin with the highest consistent trading volume. USDC has since closed the gap somewhat, and is now available on many of the same blockchains as Tether.
The Biden administration recently published a report calling for greater regulation of stablecoins, and the Treasury Department has pressured Congress to pass legislation requiring stablecoin issuers to become insured depository institutions (similar to a bank).
With the threat of stablecoin regulation looming, it’s vital that issuers take the precautionary steps necessary to not be caught off guard once such laws are passed. Releasing consistently audited reserve reports is a good place to start.
What is USDC?
USDC is a stablecoin that is pegged to the price of the US dollar – so 1 USDC = $1.
It was launched in 2018 by a partnership between Coinbase and Centre (Centre Consortium). The token was first listed on Coinbase and has been integrated on other exchanges ever since, such as Binance and the SwissBorg app. An important update of USDC was the introduction of gasless sends in August 2020, which gives the possibility of paying gas fees in USDC instead of ETH.
USDC is powered by the ERC-20 smart contract in the Ethereum blockchain and is also supported on other blockchains (Algorand, Solana, Tron, Stellar). It is an open-source project, which makes it a transparent and verifiable stablecoin on the blockchain.
Transparency is provided by regular audits that are operated to ensure that the circulating supply of USDC equals the amount of USD held in reserve bank accounts. This process works by sending USD to these bank accounts, which are then used to create an equal amount of USDC through a smart contract and sent back to the user.
Even though the stablecoin is issued by third-party American institutions and thus provides stability and safety, USDC poses a problem in that it is a centralised stablecoin. This means that Centre Consortium has so much control over it that they can make any decisions that will affect the stablecoin.
Many institutions have successfully adopted USDC for payment purposes. As an example for its wide adoption across institutions, Visa has supported USDC as a transaction settlement through crypto.com as of March 2021. USDC thus provides an institution-oriented solution for transactions on the Ethereum blockchain, ensuring the stability of the coin.
Get the BlockCard for USD Coin
The BlockCard is a crypto-enabled debit card that gives 12+ cryptocurrencies, including USD Coin, real-world spending power at over 61 million merchants worldwide. You can earn up to 6.38% in crypto-back rewards when you spend with your BlockCard.
There are no more hidden fees and confusion caused by exchanges when you used the BlockCard from Unbanked. Get the best available rate when you buy and sell digital currencies through Unbanked and use the BlockCard.
Buy stablecoins, including USD Coin Stablecoin (USD Coin), on Unbanked at the best available rate with your BlockCard or bank account. Sending stablecoins to your BlockCard is fast and free.
Don’t have a BlockCard? Get one today! It’s free for life when you request it online, then pay only 2% of every transaction in USD Coin Stablecoin fees that are then redistributed to HODLers.
Understanding USD Coin
USD Coin is a digital currency that is fully backed by U.S. dollars or dollar-denominated assets like U.S. Treasury securities. USDC's reserve assets are held in segregated accounts with regulated U.S. financial institutions. The accounting firm Grant Thornton oversees these segregated accounts and provides monthly attestation reports.
You may be wondering about how USDC maintains the 1:1 peg with the U.S. dollar. If you initiate a transaction to buy one USD Coin using fiat currency, then that fiat currency is deposited and stored as one U.S. dollar and the new USDC is minted. If you sell a USD Coin in exchange for fiat currency, then the USDC is “burned” when the fiat money is transferred back to your bank account.
USDC is compatible with several blockchains, including:
USD Coin is managed by Centre, a consortium co-founded by the cryptocurrency exchange Coinbase and Circle, a financial technology company. Centre aims to change the global financial landscape by connecting every person, merchant, financial service, and currency worldwide.
Is My Voyager Deposit Federally Insured?
There has been some confusion about this, so pay attention.
Cryptocurrencies held on Voyager are notFDIC insured.
USD held on Voyager is FDIC insured:
I have not seen much written up about how Voyager lends out the cryptocurrency you deposit, the risk profile of those borrowers, and the risk of your deposit going to zero.
In order to charge 14% interest (or whatever Voyager charges) in order to pay its customer’s 9%, there is going to be a risk. It’s just not clear how risky their staking and lending program is.
Not many websites or reviews of Voyager have talked about this. There is a chance you could lose all your deposited cryptocurrency that is earning interest on Voyager. Please keep this in mind moving forward.
Are There Any Risks of Investing in USD Coin?
Yes. USD Coin investments are not risk-free. The most prominent concern with stablecoins is that while it’s not impossible, it’s difficult to verify the exact amount of fiat currency that the issuer holds as reserves. This risk is directly related to a stablecoin’s fundamental characteristic, so it is a big concern.
However, USDC is backed by reputable companies. Add to that Grant Thornton’s monthly audits. These factors confer a lot of credibility on USDC and make it more reliable than other fiat-backed stablecoins like Tether.
There is also an interest rate risk that accompanies USDT deposits. As it becomes more widely accepted, the rates may wither. However, the rates of return will still be much more attractive than what investors receive from the bank or other traditional channels.
Finally, there’s also a risk of the wallet being hacked. However, this is a risk that investors can avoid by using a cold wallet. It’s preferable to store keys on a computer or storage device that is never connected to the internet.
Even better, investors could use a paper wallet, which is just a piece of paper with private keys printed on it. Investors can store these paper wallets somewhere safe at home or in a bank locker. Using such wallets eliminates the risk of the wallet getting hacked almost entirely.
Is Earning Interest on USDC Worth It?
Earning interest on USDC can be a great option to begin earning interest on crypto assets. Interest rates are much higher than those of typical saving accounts, giving investors much higher returns. However, risks of hacking and insurance pose a threat to your investment, so it is not entirely secure. If you can tolerate the risks and are looking to begin earning interest on crypto assets, stablecoins like USDC are a great option.
Why are there so many USD stablecoins?
With multi-billion-dollar market capitalizations, USDT and USDC are the most popular stablecoins used today. But they are not the only ones.
Binance has their own stablecoin (BUSD) and Dai (DAI) is an Ethereum-based one, designed to function specifically on those networks. Just like USDC and USDT, both of these coins will always equal $1, but that doesn’t mean they are completely interchangeable—the one you choose to purchase will depend on which blockchain and applications you wish to interact with.
What type of stablecoin is USDC?
USD Coin is a fiat-collateralized stablecoin, meaning that USDC tokens are collateralized by fiat money like U.S. dollars. Other types of stablecoins include those that are collateralized by a cryptocurrency, or an algorithm, or by hybrid approach.
Earning a yield on your stablecoins
The SwissBorg app offers an easy way to start investing in both USDC and USDT on the ERC-20 blockchain. With SwissBorg’s Smart Yield wallets, you can earn attractive yields on both USDC and USDT every 24 hours, with the possibility of doubling your yield if you’re a Genesis Premium user. Check out our yield rates for stablecoins and other crypto assets here.
According to FINRA, a key risk to consider when holding stablecoins such as USDC is that “it can be difficult, if not impossible, for the public to verify how much fiat currency the issuer actually holds or what percentage of stablecoins are backed by reserve assets.” This is absolutely a serious risk to evaluate when investing in stable coins, but the fact that USDC is overseen by and backed by reputable and high-profile companies like Circle and Coinbase, plus the transparent monthly audits, gives it an additional layer of credibility in my mind and puts it a step above other fiat-based stable coin options.
Another risk to USDC and stablecoins in general is that the interest rates on these assets will probably come down over time as they become more widely adopted, but that is probably further out and even a reduced interest rate would still be attractive compared to a lot of the other options out there.
Lastly, an additional risk would be the exchange where one is holding the stablecoin getting hacked.
Is Voyager Safe to Use?
No — Voyager could lose your cryptocurrency deposits and not be responsible for the losses.
The company is publicly traded (VYGVF) and is US-based. However, safety isn't always as simple as a yes or no. I felt comfortable enough putting some of my money into a high-yield situation with Voyager, but the reality is that the money could still go to zero.
Apparently, the losses have been reversed, but it is something to keep in mind.
You also have to consider that the stablecoin, USDC, is managed by Circle. They’ve been transparent in what assets they hold to back the USDC, but that could pose additional risk.
It’s unlikely that your cryptocurrency would instantly go to zero in Voyager. It is a public company. It has revenue streams and has been willing to lose money as a business to pay out the rewards program. However, I would confirm that in Q2 the company is profitable (or close to it). Too many months of losing money may pose more risk for holders of interest-earning cryptocurrencies in their platform.