What are Dollar-backed Stablecoins – USDT & USDC? | Interaxis.io
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In order to realize the efficiencies in Blockchain technology, we need to have money that is programmable, but also maintains a stable value. We can’t see the wild swings in the currency that we see in Bitcoin and Ethereum, and expect any International Trade to take place.
Therefore, we have cryptographic tokens that roughly equal the value of a dollar. Now I can transact on a multi-million dollar contract, that might take several months to fulfill, and be confident that I am not taking on any currency risk.
We address USDT – US Dollar Tether. Tether was created as an ERC-20 (Ethereum) token to serve as a dollar-equivalent on centralized Crypto exchanges. Originally, the goal was to have a dollar in the bank for every USDT issued.
The idea was that exchanges couldn’t be expected to have dollars to transact against, since that would make them subject to banking and other financial regulations, and would subject them to the same fees and friction that Crypto is trying to eliminate.
Having a dollar-equivalent to transact against was tremendously important.
Now we know there are not enough dollars in custody to match the USDT in existence. However, USDT maintains it’s rough peg to the US Dollar because the exchanges need it to. They can’t afford for it to fall too far out of alignment.
Now, USDT has started moving off exchanges, and is being used in Decentralized Finance as a dollar-equivalent Stablecoin.
Another Dollar-backed ERC-20 Token is USDC – US Dollar Coin.
This token is issued by Circle – Circle holds US Dollars in custody, and issues tokens to match the amount of dollars they hold.
The supply of both is audited each month by Grant Thornton, a top-5 accounting firm, and the results are published on the Circle website.
USDC was implemented by Coinbase, and is now used heavily in DeFi. The goal was to create a stablecoin that could give companies and industries the ability to feel comfortable using Blockchain.
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