USD Coin, America's 'Stable' Cryptocurrency, Explained

Robinhood, the popular and contentious online financial trading platform, has officially added the first "stablecoin" to the list of cryptocurrencies it supports.

On Tuesday, Robinhood announced that it was adding USD Coin to its trading platform, tweeting out the news alongside a link to the coins page on its site. Mostly known for allowing users to trade stocks, Robinhood also currently supports 17 cryptocurrencies for trading, including popular options like Bitcoin and Ethereum.

Historically, cryptocurrencies are known to be highly volatile, routinely experiencing sharp declines and rises in value. In addition to being an unstable store of the wealth of coin holders, this volatility has also prevented cryptocurrencies from being adopted by businesses, as there is no guarantee that a sum of Bitcoin, for example, will hold the same value by the end of a transaction.

Stablecoins, like USD Coin, aim to offer a solution to this problem, offering coins that are fully blockchain-based, like other cryptocurrencies, but also ones whose values are pegged to an existing asset.

In the case of USD Coin, the firm behind it, Circle Internet Financial, claims that every single coin is backed by a reserve of cash and U.S. government-issued debt obligations. While stablecoins have recently had their reputations tarnished by high-profile coins experiencing volatility, Circle has made bold promises about its coin's reliability and transparency.

"USDC reserves are held in the custody and management of leading U.S. financial institutions, including BlackRock and BNY Mellon," the official USD Coin page on Circle's website reads. "Each month, Grant Thornton LLP, one of America's largest audit, tax, and advisory firms, provides third-party assurance as to the size of the USDC reserve."

Circle's page claims their coin's market circulation is around $50.4 billion, with a reserve of $50.4 billion backing. This reserve, they claim, breaks down to around $10.4 billion in cash and $40.1 billion in "Short-duration U.S. Treasuries."

USD Coin is the second-largest stablecoin by market capitalization, behind only Tether, which had a cap of around $66 billion in August.

Newsweek reached out to Circle for comment.

Faith in stablecoins was challenged in May when the popular coins, TerraUSD and LUNA, experienced a massive crash despite promises of stability and parity with real assets. The crash wiped out roughly $45 billion in market capitalization within a week. Since stablecoins are generally used as a store of wealth, many holders found huge portions of their life savings wiped out by the crash.

"I, and I alone, am responsible for any weaknesses that could have been presented for a short seller to start to take profit," Do Kwon, CFO of the project behind the two stablecoins, said in the wake of the crash.