by Alex Broudy, Technical & Financial Writer
Jun 23, 2022
Simply put, stablecoins are digital assets that use outside capital to stabilize unit price. For instance, USD Coin (USDC) stabilizes its unit price (with each unit equal to $1) by collateralizing USDC with U.S. Dollars (USD) and short-term government obligations denominated in USD. This full-reserve collateral keeps USDC stable and redeemable on demand.
Using public blockchains to record and verify stablecoin transactions removes the need for traditional counterparties and reduces the cost of moving money from point A to point B. While many stablecoins use emerging blockchain technologies to make the user experience faster and easier, asset management best practices remain an important part of ensuring liquidity. For this reason, full-reserve stablecoins like USDC remain optimal for investors.
While there remain market, liquidity, and regulatory risks associated with emerging technologies and the financial instruments they support, USDC has proven to offer a more stable building block solution for firms developing modern financial services because of its full-reserve status. This demonstrable transparency and auditability offers more assurance that USDC remains liquid and redeemable on demand. So, when USDC holders choose to transact or invest, they experience near-instant settlement, lower fees, and 24/7 accessibility on the frontend while trusted asset managers and custodians maintain liquidity on the backend.
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