What is USDC? Reserves, Yield & Safety

What is USDC?

USDC (USD Coin) is a stablecoin backed 1:1 by U.S. dollars, fully collateralized by liquid assets such as short-term U.S. Treasuries, overnight Treasury repurchase agreements, and cash. Issued by Circle, its reserves are managed by BlackRock and custodied at The Bank of New York Mellon, ensuring liquidity and stability for instant redemption at any time.

The stablecoin operates across 15 blockchains, including Ethereum, Solana, Polygon, and Avalanche, making it easily accessible for DeFi, cross-border payments, and crypto trading. Over $35 billion is in circulation, with $24 billion on Ethereum, $3.5 billion on Base, and $2.4 billion on Arbitrum.

USDC provides daily transparency reports through BlackRock and monthly audits from Deloitte. The majority of its reserves are held in the SEC-registered Circle Reserve Fund (USDXX), with daily third-party reporting available through BlackRock.

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USDC Reserves Composition

USDC’s reserves are structured to ensure that every token is fully backed by liquid assets, ensuring a 1:1 redeemability for U.S. dollars at all times. The reserves, as of October 3, 2024, total $35.6 billion, with the following detailed composition:

• U.S. Treasuries: USDC's reserve holds $8.65 billion in short-term U.S. Treasury securities. These are chosen for their liquidity and low risk, ensuring they can be quickly converted to cash if needed.
• Overnight U.S. Treasury Repurchase Agreements: $21.27 billion is allocated to repurchase agreements, which are collateralized by U.S. Treasuries and provide additional liquidity while maintaining security.
• Cash: The reserve includes $1 billion held as cash in the Circle Reserve Fund, which is custodied at The Bank of New York Mellon and managed by BlackRock. An additional $3.96 billion is held as cash at regulated financial institutions.
• Settlement Adjustments: There are minor settlement timing differences amounting to -$134 million and -$31 million across the Circle Reserve Fund and other financial institutions, respectively.

Investors can access real-time updates through Circle’s transparency report, provided by BlackRock, with monthly independent attestations from Deloitte to ensure complete accuracy and oversight of USDC’s backing.

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Fees for USDC Transfers

Fees for transferring USDC vary based on the blockchain you're using. On Ethereum, you’ll typically pay between $2 to $5 per transfer due to network congestion. In contrast, cheaper networks like Base and Solana offer much lower costs, with fees usually less than a cent. 

These fees, known as gas fees, can significantly impact transaction costs, so it’s important to choose the right network based on your priorities, whether that’s speed, cost-efficiency, or other factors.

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Staking USDC for Yield

USDC is a top choice for collateral in decentralized lending markets like AAVE, where investors can earn up to 4.25% APY by lending it out, while borrowing costs hover around 5.35%.

As a US-regulated stablecoin, USDC is trusted in DeFi, making it a popular option for those looking to earn yield with minimal risk.

If you're looking for more ways to earn on stablecoins, check out our guide on platforms offering the best yields on stables.

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Why Did USDC Depeg?

USDC temporarily depegged from its $1 value after Circle revealed that $3.3 billion of its reserves were tied up in Silicon Valley Bank (SVB). In March 2023, SVB collapsed following a bank run, creating uncertainty about USDC's backing. This caused USDC's price to drop to around 80 cents.

The situation corrected when regulators stepped in and guaranteed that SVB's depositors, including Circle, would be made whole. USDC quickly regained its $1 peg. 

The incident highlighted the risks of relying on specific banks for stablecoin reserves, exposing a structural vulnerability.

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Is USDC Safe?

USDC is widely regarded as a reliable stablecoin due to its full backing by U.S. dollar reserves. However, like any financial asset, there are risks involved:

• Counterparty Risk: USDC's stability depends on Circle, its issuer, and the banks holding its reserves. If Circle or these banks face financial issues (e.g. the Silicon Valley Bank bank run), it could affect USDC's value.
• Regulatory Risk: Changes in regulatory frameworks could impact USDC’s operations or its ability to maintain its dollar peg, as the crypto space remains subject to evolving laws.
• Smart Contract Risk: USDC used in decentralized finance is exposed to potential vulnerabilities in smart contracts, which could lead to security issues.

Despite these risks, USDC is considered a trusted stablecoin for users seeking stability in the crypto market. Managing these risks is essential for anyone engaging with USDC.

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About Circle

Circle, founded in 2013 by Jeremy Allaire and Sean Neville (who has now stepped down), is a U.S.-based fintech company driving innovation in digital finance. It holds licenses across 49 U.S. states, Puerto Rico, the District of Columbia, and Singapore. 

With reserves managed by BlackRock and custodied at The Bank of New York Mellon, Circle ensures full regulatory compliance.

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Bottom Line

USDC has built a strong reputation as a reliable, fully-backed US stablecoin in crypto. With over $35 billion issued, it is widely used in DeFi, payments, and trading. 

While second to Tether’s USDT in market share, its transparent reserve management, regular audits, and regulatory oversight give it a distinct edge for users seeking stability and compliance. 

However, it's important to remain mindful of potential risks, such as regulatory shifts or reliance on specific financial institutions for its reserves.