Since these coins are tied to an asset, usually a fiat currency like the U.S. dollar, they’re believed to be more “stable” than their substantially more volatile crypto peers. It’s this perceived sense of stability that makes stablecoins an attractive option for many investors looking to play the virtual coin market without the ups and downs.
Stablecoins have been around since 2014, but their popularity has soared over the past year, pushing their combined market cap past the US$100 billion mark in 2021. This rapid increase boosted the visibility of one of the leading constituents of the stablecoin market: USD coin (ticker symbol USDC), the eighth-biggest cryptocurrency by market cap—currently sitting north of US$41 billion, as of Dec. 8, per CoinMarketCap.com.
The coin owes its sharp rise into the public consciousness to payment processing giant Visa, which announced in March 2021 that it would support transaction settlement using USDC. The move instantly raised the coin’s profile and enhanced its validity. If this piques your curiosity about stablecoins, here’s a closer look at USD coin, one of the best-known stablecoins out there, and how Canadian investors can buy it.
What is USDC?
To understand USD coin, it helps to know what stablecoins are and how they function. Stablecoins are privately issued cryptocurrencies whose value is anchored to an underlying fiat currency or commodity. For example, USDC is pegged to the U.S. dollar on a one-for-one basis.
“Stablecoins allow an investor to buy the same amount of stablecoins using the same amount of fiat currency—for example, US$100 for 100 USDC,” says Jeremy Cheah, associate professor of crypto-finance and digital investment at Nottingham Business School.
Likewise, you can redeem US$100 with 100 USDC with no fees. USDC, therefore, is backed by “fully reserved assets equivalent to the amount of USDC in circulation,” he notes.
Because stablecoins are stable in value, they’re more practical to use as money. “The value of other cryptocurrencies is volatile, and most of them are not backed by reserves,” says Cheah. “While other cryptocurrencies could be used for speculative purposes, stablecoins have greater potential to be used for transactional purposes.”
Stablecoins are often used as a refuge when a market downturn is anticipated. “USDC and stablecoins in general are extremely useful because they offer the benefits of crypto without the standard volatility associated with bitcoin or ethereum,” says Ivan Payan, chief operating officer at Olyseum, an entertainment production company that deals in digital assets. As of Dec. 8, 2021, over 41 billion USDC are in circulation.