The Historical Token of

The token in discussion for this article goes by the name of USD Coin, and unlike other coins discussed before, this one is particularly merged with the recognized government currency of the US dollar. That’s right, cryptocurrency has already evolved to the point at wbich, there is a deep connection between the day-to-day exchanges of a dollar versus how it reflects onto the blockchain. Now, in this case, you’re likely wondering how this is possible.

Ever since the introduction of Ethereum came to fruition, creating a token under the estabished protocols of ETH has unlocked a special abilitty for owners to be able to include all sorts of methods into faster trading, such as staking, use of tokens in mobile applications (otherwise known as dApps), and various other uses of tools connected to their well known protocol, which goes by the name ERC-20. In this case, the most important aspect of USD Coin that makes use of the Ethereum blockchain, is its different identification, and most tokens today are generated at ease and called ‘altcoins’. This one, is not so particularly generated at ease, and it’s labelled under the category of stablecoins.

Although mentioned before, the ‘stablecoin’ is a lesser known phenomenon under the blockchain at which the token does not necessarily have the form factor of demand behind it, but more so, the actual resemblance of a real currency in a digitally independent world. What this means is, the stablecoin itself can be supported or backed up by a particular asset in use, and because USD coin is based on the American dollar, it is supported by the movements of fiat currency. Fiat currency, for those who don’t have a background in finance knowledge, is specifically identified as a type of currency that is not directly related to a physical commodity, which in this economic era could be identified mostly with gold. USD Coin therefore is a digital replica of the same dollar, though it cannot be physically traded on the NASDAQ, but is more so indirectly related to its predecessors movements in the markt when it comes to stocks and bonds.

Since this currency in of itself is connect to the government, this also brings other benefits along the way, such as the fact that cybersecurity is brought to a new level with how the token can be particularly monitored. To expand on this existing process, we should mention the Financial Crimes Enforcement Network (FinCEN), a specific organization that is almost similar to the Financial Action Task Force or the newly developed Blockchain Task Force, at which illegal activities are to be monitored by a larger group of individuals that have expertise and knowledge in how tokens could be prioritized by hacker for malicious activities on the same network. Short for FinCEN, USD Coin is at its core registered under this system, but not directly though through community built applications instead, one of these being Circle. Circle, at its core, is a FinCEN based application that can help tokens become more secure, preventing financial fraud that is common in the economy and alotgether stengthening regulatory policies that you wouldn’t otherwise find in say, DogeCoin.

Now of course, cryptocurrencies cannot be mentioned without the process of mining them, though, USD Coin comes as an exception. Be cause the token is directly linked to the American dollar in a network, unlike Bitcoin or Ethereum which can be mined, USD coin typically cannot be done so in the same way. Therefore, it works on the other side of token exchanging, at which it can be taken ownership by anyone, but traded on a volume at which it serves particularly well when it comes to converting the token instead. The point of interest here is, not all token necessarily have to be valued at just their identification, but can be converted into something else, and that’s where then relatibility between cyrpotcurrency mining and USD coin comes in. For example, if you are mining for Bitcoin or Ethereum, you can take your earnings and convert it solely to USD coin, therefore in some way securing what all of your computing power at that stage has yearned for.

Returning back to the connection this token has to the Ethereum blockchain, it is important to mention that it is a far more efficient token as well. On the record, because USD Coin is under the ERC-20 protocol, it also functions under the activity of staking, where an average transaction in relation to USD coin takes around 5 minutes, which equates to the volume of 20 stakeholders of a similar coin verifying this token all in that same time period. To numerically expand on this idea, there is also a supply of this coin, at which it comes down to about 44 million of them, or roughly 5% of the total existing capital of coins. As we’ve mentioned in the past that the rise of tokens vary based on how they’re applied to a particular purpose built within an application, USD coin functions under a similar fashion in the sense that, trading in USD coin is far more convenient and efficient than it would be via doing a bank transfer with the normal American dollar. Faster bank transfers, and by the minute transactions, is what ultimately proves it more stable and cost-efficient on top of its connection to the US dollar altogether.

This is not to say, that there isn’t the process of receiving rewards over USDC as well. For example, unlike other tokens that favor airdrops, at which you complete a particular task on behalf of a larger platform in return for the token you are promised, here it’s more or less the idea of actually turning in your ownership of the stablecoin for something else. In existing finance, there is something called ‘yields’, at which there is a certain profit that is generated from an initial investment that is made. In this case, USDC is more or less the risk-free version of that, at which borrowers can trade their USDC tokens for crowdfunding investments for startups under a domestic or international level.

With crowdfunding, thanks to the formation of the DAO (Decentralized Autonomous Organization), this is entirely possible at the hands of any Ethereum token. Despite previous instances of hacks that were held in place, the use of cross-chain (or parallel) networks helps to enhance the strength of this security, by also balancing the share of power that is required to make sure the Ethereum network is actually functioning in favor of transactions that take place with USD Coin. Referring back to the app that’s responsible for making this functioning security organized under government affiliations such as FinCEN, Circle, is connected to other transactional branches that trade the dollar within high-risk portfolios, one of them being Goldman Sachs. With this relation, Circle is able to also add the mixture of other financial resources into the processes of the token, this mainly being short-term treasury bonds, and assets involved with diversifying a pool of investments.

For those that don’t know what treasury bonds are, they are simply government provided bonds to support public spending, at which those who invest in them usually pay it back with periodic interest. In simpler terms, treasury bonds are also known as coupon payments, where a particular bond must be paid after a certain maturity rate, this usually lasting about a decade(s). We can find out how this coincides with USDC’s operations via another exchange platform known well to the community, called Coinbase. Coinbase, similar to Binance, is the American exchange that represents volume in trading tokens for everyone that is able to invest into them. But exclusively for USDC, when owning a stake in the same token, Coinbase rewards the person for the number of days they’re able to uphold the value of their stake at the same rate regardless of market volatilities over the American dollar. In general, what this implies for those aiming to build tokenized portfolios, is that at its core, if you can hold onto something long enough, you can reap its financial benefits to the point at which other platforms may leverage what you have as well.

Although various benefits of this token have been mentioned, it is important to note that, the word ‘stable’ in ‘stablecoins’ doesn’t always mean that there can’t be slight declines, as the American economy is made up of its volatile counterparts. Such an example could be found in June 2022, when USDC had experienced a decline in market capitalization, at which it had average to about 56 billion $ until it declined to an estimate of 34 billion$ until August 2023. Although this can happen, the reasons for it aren’t exactly what you might think, as we can’t forget that this is a stablecoin. Meaning, there are parts of the USDC that are branched out into various investments, that can be divided between the following which are: 60% of total payments are invested through third-party dApps, 15% towards direct payments in transactions, and the remaining 15% of the token being deposited through money transfers and correspondoing currency conversions via the euro, pounds,and of course dollars.

The decline here is that, sometimes the supply of the token due its reliance on the Ethereum blockchain, can significantly go down to the large weight on traffic and earlier mentioned conversions with other currencies. But, on a bigger scope of things, their is always the golden ratio of USDC, which is that since it’s a near replica of the American dollar, it keeps up a positive elastic ratio of 1:1, meaning that measuring by volatility, almost 80% of the time there is going to be a balanced flow between how the value of USD corrsponds with USDC, which ultimately makes the investments people plan to make with it just about risk-free or stable.

With all this discussion around how something becomes risk-free, the logistical background of this plausability comes from the notion that the pricing between USD and USDC should always come to about 1$. Notice that, unlike BTC, it is kept at this rate to strongly correlate with its fiat currency, hence making it combat against market volatility and negative price elasticities. Mentioning once again how declines are possible, just tpo pain the picture of the coins stability, we can mention that between June 2022 and August 2023, the coins value had only fallen down to 0.9998$. This decline was made possible despite other heavy investments revolved around the currency, which can be treasury bonds for example.

Speaking of price increases and decreases, it cannot be forgotten that volume is a big part of why these actions take place. For example, with Circle, the app that primarily secures USDC, they own an equivalent amount of cash in USD as they do in short-term treasury bonds, which maintains overall balance and protection against market volatility. If we were to put two tokens side by side, one being an altcoin such as Bitcoin for example, and the other being USDC of course, the measure of statistics would yield that the initial currency that creates the blockchain has a yearly return of -35%, which has a signifiantly higher ATL (All-Time-Low) than would apply to USDC.

Of course, since exchanges are the ultimate platforms that facilitate tokens such as USDC into the community all at once, it is important to mention that Coinbase is not the only exchange that holds this stablecoin at large, as so does the same apply to other exchanges such as Binance, Poloniex and so on. On these other exchanges, the tokens that people incentivized to convert to USDC are usually USDT, BTC (Bitcoin), ETH (Ethereum), ZEC (Zcash Network), BAT (Basic Attention), and LET (Liberia token). These trades are all made under their appropriate networks, as mentioned before, due to the ongoing improvements in the transferral of tokens with parallel blockchains.

In certain countries, access to this level of financial freedom is usually limited, due to government restrictions, hence why USDC thanks to cross-chain technology is more or less another way to make fast transfers without the additional costs or limitations. For example, when you’re making a bank transfer, it could take anywhere from 48 hours to a week as the verification relies on one central institution, whereas USDC is more or less beneficial to someone with a cryptocurrency wallet such as Trezor, which we’ve revealed and reviewed in another article. High fees, slower times, are usually bypassed thanks to this technology, and the allowance of government regulated tokens, making public trading on exchanges far more efficient than it ever was before.

Returning back to concept of Bitcoin, it is important to mention that, actions are being taken to help secure the fund as it is being popularly converted to USDC. Due to its hikes and major drops in prices, it has been mentioned that the government is looking to benefit stakeholders in BTC using a Bitcoin futures exchange-traded fund (ETF), which allows Bitcoin to be applied to the buying and selling of shares, stocks, bonds, and much more. The concept has been passed ever since 2021, which makes its valued correspondance with USDC a lot more efficient, though it does come with its own risks which can be mentioned in future workshops.