· 2 min read
What is USDC, the digital dollar, and how does it hold its value?
How the most widely used stablecoin in payments works, what keeps it pegged to the dollar, and the risks you should know before using it.
USDC is a stablecoin: a token that circulates on public blockchains and is designed to always be worth one US dollar. It is issued by Circle, a US company, and can be sent between wallets at any time, including weekends and holidays.
How the dollar peg is maintained
Every USDC in circulation is matched by one dollar held in reserves, made up of cash in accounts and short-term US government securities. Approved businesses can exchange USDC for dollars, and dollars for USDC, at a one-to-one ratio. That exchange is what holds the price in place: if the token traded below one dollar on the market, buying it cheap and redeeming it for one dollar would turn a profit, and that buying pushes the price back up.
Circle publishes monthly reserve reports, examined by an independent accounting firm. It's worth reading those reports on the issuer's website rather than relying on third-party summaries.
What it's used for day to day
- Holding value in dollars without needing a bank account abroad.
- Getting paid by clients in other countries within minutes, without waiting on banking hours.
- Paying suppliers and partners that already accept crypto.
- Topping up a card and spending the dollar balance wherever the card network is accepted.
The risks you should know
A stablecoin is not a bank deposit and is not protected by a deposit guarantee fund. Its value depends on the issuer maintaining its reserves and being able to honor redemptions. In March 2023, when the US bank Silicon Valley Bank failed while holding part of Circle's reserves, USDC traded below 90 cents for a few hours before returning to one dollar.
- Issuer risk: the peg depends on Circle and on the institutions where the reserves are held.
- Network risk: each blockchain has its own rules, fees and occasional instability.
- Address risk: a transfer sent to the wrong address or on the wrong network usually cannot be reversed.
- Regulatory risk: stablecoin rules are still being defined in many countries.
How to use it safely
Always double-check the network and the address before sending, start with a small amount when sending to a new destination, and never share your recovery phrase. In your account, your digital dollar balance appears alongside your reais, dollars and euros, and you can see the total in the currency of your choice.