Recently there has been excitement in the cryptocurrency community over reports that USDC, the second largest stable coin, is losing its peg to the US dollar. In this article, we take a look at what is happening to USDC and what the consequences could be.
USDC (USD Coin) is a stable coin created in 2018 as a joint project between two companies, Circle and Coinbase. It is an ERC-20 token based on the Ethereum blockchain, and was created to give users the ability to quickly and securely store and exchange US dollars in digital form.
USDC is pegged to the U.S. dollar at a 1:1 ratio, which means that each USDC token must be backed by one U.S. dollar. This makes USDC a stable coin that allows users to avoid the volatility inherent in other cryptocurrencies.
How is USDC losing its peg to the dollar?
Recently, the cryptocurrency community has begun to discuss the topic that the USDC may lose its peg to the dollar. This is due to the fact that in March 2021 Circle, the company that created USDC, announced that the share of assets that support USDC now includes not only U.S. dollars, but also other assets such as corporate bonds, commercial paper, etc.
This means that the USDC will no longer be fully backed by U.S. dollars, and thus will no longer have a full link to the dollar. But Circle argues that the change will not affect the stability of the USDC because the new assets included in the stake will be of high quality and liquidity.
What could be the consequences?
The USDC changes have raised some concerns in the cryptocurrency community. Some experts believe that USDC could lose the trust of users and investors if they are unsure of its stability.
However, other experts argue that changes in USDC should not cause strong concerns. For example, Robert Lescher, CEO of Compound, said that the changes to the USDC were predictable and that he still expects most users to use the USDC as a tool to store and exchange U.S. dollars in digital form.
In addition, USDC will continue to be tied to a basket of high-quality assets, which means there will be minimal risk of value loss. In addition, Circle and Coinbase are the largest and most trusted companies in the cryptocurrency industry, which should also increase user confidence in USDC.
Overall, despite the changes in USDC, it remains one of the most stable and trusted stable tokens on the market. While some users may be a little alarmed by the changes to USDC, most experts believe that the changes will not hurt the long-term stability of the coin.
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