Launched in 2018 by Centre, a consortium founded by Circle and Coinbase, USD Coin was created as a regulated stablecoin that runs on blockchain technology. Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency, a commodity or even another crypto coin. USD Coin aims to maintain a one-to-one peg with the U.S. dollar.

Tether tokens exist as digital tokens built on bitcoin (Omni and Liquid Protocol), Ethereum, EOS, Tron, Algorand, SLP and OMG blockchains. These transport protocols consist of open source software that interface with blockchains to allow for the issuance and redemption of cryptocurrency tokens.

How does USDC Work?

Circle guarantees that every USDC token is backed with a single US dollar. The process of turning US dollars into USDC tokens is called tokenization.

Tokenizing USD into USDC is a three-step process:

  • A user sends USD to the token issuer’s bank account.
  • The issuer uses USDC smart contract to create an equivalent amount of USDC.
  • The newly minted USDC are delivered to the user, while the substituted US dollars are held in reserve.

Redeeming USDC for USD is as easy as minting the token, except the process is reversed:

  • A user sends a request to the USDC issuer to redeem an equivalent amount of USD for USDC tokens.
  • The issuer sends a request to the USDC smart contract to exchange the tokens for USD and take an equivalent number of tokens out of the circulation.
  • The issuer sends the requested amount of USD from its reserves back to the user’s bank account. The user receives the net amount equivalent to the one in USDC tokens, minus all incurred fees).

Unlike the most popular stablecoin Tether (USDT), creators of the USD Coin are obligated to provide full transparency and work with a range of financial institutions to maintain full reserves of the equivalent fiat currency.

All USDC issuers are required to regularly report their USD holdings, which are then published by Grant Thornton LLP. All the monthly attestation reports can be found here.

How to Use USDC

USD Coin (USDC) is a 1:1 representation of one US dollar on the Ethereum blockchain. It’s an ERC-20 token and can be used with every app which supports the standard. To tokenize or redeem USDC with Circle, you need to register an account, verify your identity (KYC), and link a legitimate bank account. Circle USD platform allows users to perform four core actions:

  • Tokenize USD;
  • Redeem USDC;
  • Transfer USDC out to ERC20 compatible Ethereum addresses;
  • Deposit USDC from external Ethereum wallet addresses.

Circle USDC doesn’t charge users any fees for tokenizing and redeeming services, except there is a $50 commission for incorrect and rejected bank transfers. For Coinbase USDC operations, all the standard fees apply. A minimum USDC redemption amount is 100 USDC. The tokens are processed on business days only, and the process can take up to 24 hours. There’s no minimum tokenization amount, and the process can take up to 2 business days.

In general, Stablecoins like USDC are used to:

  • Short cryptocurrencies without cashing out and make it easier to buy cryptocurrencies in the future.
  • Avoid traditional financial instruments and institutions.
  • Avoid hyperinflation (for people living in countries like Venezuela or Turkey);
  • Send money instantly, globally, securely and at low cost.
  • Purchase items in various crypto dApps, exchanges, and blockchain-based games
Pegging Mechanism

Stablecoins are cryptocurrencies that are supposed to be pegged to fiat currencies like the US dollar. In the cases of USD-pegged Stablecoins, their prices are supposed to be $1 at all times. Each stablecoin project differs in ways they maintain the peg. The two biggest ones, tether (USDT) and Circle’s USD coin (USDC), are “over-collateralized” by fiat reserves, meaning they have cash or cash-equivalent assets in their reserves. So each USDT or USDC traded in the crypto market is backed by what’s actually in the possession of the stablecoin issuers.

It’s Ethereum-based; store USDC in any Ethereum-compatible wallet (which is to say, the vast majority of them). Beyond Ethereum, USDC is available on a host of other chains such as Solana, Algorand, and Avalanche. And of course, tokenization provides all the usual blockchain benefits. View transactions, trade USDC for other tokens on centralised exchanges (CEX), jump into DeFi with a decentralised exchange (DEX), etc.

“USDC, and other stablecoins, arose partly to solve a critical problem:
the relative volatility of crypto. That relative stability allows investors to
use USDC as
collateral in smart contracts without fear of major price swings.

Crypto Stablecoins can be put into four categories:

  • Fiat-collateralized: These include all stablecoins pegged to reserved fiat value. All fiat-collateralized coins are centralized by design. Examples: Tether (USDT); TrueUSD (TUSD): Gemini Dollar (GUSD); Paxos Standard Token (PAX); Digix Gold (DGX); USD Coin (USDC).
  • Crypto-collateralized: These are stablecoins whose value is pegged to reserved crypto assets. Examples: Makercoin (MKR & DAI); Havven (nUSD & HAV).
  • Algorithmic non-collateralized: Software-based economic models that seek to provide price stability without any collateralized assets. Example projects: Basis; Kowala; Fragments.
  • Hybrid: Stablecoins which rely on a blend of the approaches listed above. Example projects: Carbon.

USD Coin falls into the first, fiat-collateralized coins category, and is a centralized stablecoin. In general, all the projects within the same category work in a similar fashion and have only minor differences. The more outstanding ones are Tether (USDT), known for refusing to conduct a genuinely transparent audit, and Digix Gold (DGX), whose value is pegged to gold.

USD Coin is built on an open-source fiat stablecoin framework developed by Centre. New USDC tokens are minted when people buy them, and they’re removed from circulation when people sell their tokens for U.S. dollars. Let’s say you want to buy USD Coin through a crypto exchange. Here’s how the three-step tokenization process works:

  • You send U.S. dollars to the crypto exchange to purchase USD Coin.
  • The exchange uses a USD Coin smart contract to mint the equivalent amount of USD Coin.
  • You receive the newly minted USD Coin, and the exchange puts the U.S. dollars you paid into the reserves for USD Coin.

Collateralization is the use of one asset to back the value of another asset. With crypto, the process requires the storing and locking of the collateralized assets within a blockchain protocol.


USDC, and other stablecoins, arose partly to solve a critical problem: the relative volatility of crypto. However as the term “stablecoin” implies, the price is stable – no guessing how much it’s jumped overnight. Stability is relative, of course – as the dollar goes, so does USDC. That relative stability allows investors to use USDC as collateral in smart contracts without fear of major price swings.

There are potentially 4 main uses cases for USDC.

  1. Fiat On / Off Ramp: On-ramping, i.e. converting fiat currency to crypto, is fairly straightforward. Any number of exchanges will let you pay for crypto with a credit or debit card. Just like that, you’ve converted USD to BTC, or SOL, or ETH, or any other token offered by that exchange. But off-ramping is a bit trickier, as a lot of exchanges will let you do it, but you’ll face some hefty fees. It’s still a handy system if one is withdrawing on an infrequent basis, but if you’re an investor with a lot of funds at stake, you’re paying steep fees every time you switch between a fiat-based and crypto-based financial system. USDC lets investors keep their assets in the crypto ecosystem while holding a token that is argued to be equivalent to the dollar.
  2. Payments: Getting paid in crypto is increasingly common. But crypto’s volatility poses a challenge when you’re paying or getting paid in crypto. Say $300 in Cardano is 300 ADA, but if a crash happens overnight and you want to pay someone the next day, you’ll need to purchase more ADA to meet your obligations. Again, USDC is designed to provide a solution to such a situation, by allowing holders to pay in crypto just as if they were paying in dollars. Circle has made crypto USDC payments a major pillar of their product, with a Circle account for anyone wanting to access APIs for payments, pay-outs, and accounts. Circle wants USDC to be to the crypto world what USD is to fiat – the go-to currency for everyday transactions.
  3. Multi-chain functionality: USDC is mukti-chain and is on several chains such as Ethereum, Algorand, Solana, Stellar, Tron, Hedera, Avalanche, and Flow. Being on multiple chains makes USDC that much more flexible, able to be traded on chains with lower transaction fees. Multichain functionality increases USDC’s appeal as a payments system also; users can accept payments in one digital currency across several chains.
  4. Staking/Liquidity: In staking, users lock up tokens to ensure liquidity in a given network and are rewarded with more tokens. Originally, that process was associated with Proof-of-Stake networks. But staking has evolved with the crypto ecosystem. Yield farming and liquidity mining rely on some of the same principles but leverage increasingly sophisticated smart contracts to generate a return. Providing liquidity in the form of crypto tokens to a given protocol comes with some risk. What if the value of that token drops rapidly? In many cases, a collateralized DeFi loan can suddenly become under-collateralized and liquidated; there’s not enough value to cover the terms of the loan. USDC aims to reduce the chance of such a scenario by being a bit more stable.

Like most stablecoins, there is a Shariah compliance concern around the underlying reserves and whether they accrue any interest. Although, when purchasing USDC, ownership of the US Dollar is transferred to the counterparty and you now own USDC. However, owning USDC does not mean you own the underlying US Dollar. It is an exchange in that instance and the buyer of USDC will not be directly responsible and liable for any interest accrual on the US Dollar.

Based on and subject to the foregoing information, and for the purposes of this conclusion, nothing has come to our attention that causes us to believe that USDC is in breach of Sharia* principles and rulings as adopted by the scholars conducting this research.


*Attention is drawn to the term ‘Sharia’ and ‘Sharia compliant’ and its interpretation thereof as expressed in the following link