How Does USD Coin Work?

USD Coins aren’t just being printed out of thin air. 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 a 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 amount of tokens out of 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 (https://www.centre.io/usdc-transparency).