What is USDC?
USDC is a fully reserved asset-backed stablecoin pegged to the United States dollar. USDC runs on, and is secured by, the Ethereum blockchain as an ERC-20 token. USDC has been deployed to other blockchains, but Wealthsimple only supports the ERC-20 token. For each USDC minted and circulated into the market, Circle, the company behind USDC, holds the equivalent amount of assets, such as United States dollars, United States treasuries, and commercial bonds. Anyone can register an account with Circle, deposit their USDC, and exchange USDC directly for US dollars. Because USDC is fully backed by reserve assets and is convertible to USD, its market price is always pegged to $1 USD.
What is Centre?
Centre is a consortium that includes Coinbase, a crypto asset exchange, and Circle, a financial technology firm. Together, they launched USDC in 2018. Coinbase is the largest American crypto exchange and the second-largest crypto exchange in the world. Circle’s CEO, Jeremy Allaire Centre, founded several other successful tech companies through the 1990s and 2000s, before finally co-founding Circle in 2013. Centre continues to operate the business behind USDC, such as by minting or destroying USDC to maintain a 1:1 USDC to USD peg, addressing security needs, and facilitating transparency of reserve assets.
In order to maintain transparency with stakeholders and USDC holders, Centre works with Grant Thornton, an accounting firm, who independently verifies each month that USDC is fully backed by reserve assets.
How does USDC compare to Bitcoin?
First, Bitcoin is a coin that operates in the Bitcoin blockchain, whereas USDC is a coin that is built upon other blockchains, like Ethereum. Bitcoin powers the Bitcoin blockchain and is mined by a decentralized network of computers that solve complicated puzzles to verify transactions. By contrast, USDC is a token that utilizes the Ethereum blockchain network and its capacity to process complex smart contracts. On Ethereum, ETH is the only coin that can be mined. And miners mine ETH to process USDC transactions. It is what is known as an ERC-20 token, the name applied to the generic token standard for the Ethereum blockchain.
Second, Bitcoin’s value fluctuates according to market forces and USDC is pegged to $1 USD. Bitcoin derives much of its value from being a medium of exchange and store of value. Bitcoin has a pre-determined, fixed supply. On the other hand, because each USDC is backed by $1 USD, the market generally values USDC at 1$ USD. However, during periods of significant market volatility, even stablecoins like USDC have experienced deviations of a few cents in market value from their peg.
How does USDC compare to other stablecoins?
USDC is what known as an “asset-backed” stablecoin. Another common type of stablecoin is an “algorithmic” stablecoin. Asset-backed stablecoins, like USDC, generally can be redeemed from the organization operating the stablecoin for financial assets, fiat currencies, and/or even commodities, like gold. Other asset-backed stablecoins include USDT (or “Tether”) and PAXG (or “PAXOS Gold”). Algorithmic stablecoins employ complex algorithms that control the supply and demand of their coins to ensure they’re valued at the peg. DAI, a stablecoin that uses some algorithmic elements, for instance, is issued as debt in exchange for crypto assets as collateral. The DAI protocol will, among other things, adjust collateralization rate, interest rates, and even liquidate or auction debt, all to control the supply and demand and steer the market price to the peg. Because algorithmic stablecoins are more suitable to on-chain operations, they tend to be more decentralized. UST (or “TerraUSD”) is another algorithmic stablecoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about USDC, including an opinion that USDC is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of USDC prior to making it available on Wealthsimple Crypto and has concluded that USDC is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated USDC based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of USDC, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) or issuer(s) that first created USDC;
- The supply, demand, maturity, utility and liquidity of USDC;
- Material technical risks associated with USDC, including any code defects, security breaches and other threats concerning USDC and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
- Legal and regulatory risks associated with USDC, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of USDC; and
- The stability, resilience, and structure of the stablecoin.
Like all other crypto assets, there are some general risks to holding USDC. These include short history risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure.
Stablecoins also present risks distinct from other crypto assets. The mechanism by which a stablecoin seeks to maintain its value is not guaranteed and can present systemic market risk, capital risk, and security risk. USDC’s reserve assets are held at insured financial institutions but USDC accounts themselves are not insured and thus USDC holders do not have an insured claim to their USDC.
The USDC team and community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of USDC have no recourse to USDC or Wealthsimple if USDC declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading USDC. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.