What are the risks of holding USDC?
USDC can depeg, be frozen or lose reserves, and it is not FDIC-insured like a bank deposit. A wrong-network transfer can strand funds. Circle can freeze.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
On this page
- USDC can trade above or below one dollar.
- Circle can freeze USDC under US sanctions rules.
- USDC is not FDIC-insured.
USD Coin is a stablecoin that Circle Internet Group issues. It is pegged to the US dollar, and Circle says people use it to move between dollars and trades on cryptocurrency exchanges.
What are the main USDC risks?
USDC can trade above or below one dollar. The reserves behind the token can fall short. New rules can change how USDC is issued, held, or redeemed.
How does USDC keep its peg?
Circle mints USDC against reserves and redeems it for dollars on request. It said each token was backed by one U.S. dollar until mid-2021, then changed its wording to fully reserved assets.
What happens in a depeg or freeze?
A depeg pushes holders to redeem USDC, which can stress Circle's reserves. On March 11, 2023, USDC lost its peg after Circle said $3.3 billion of reserves were at risk from the collapse of Silicon Valley Bank. That was roughly 8% of reserves, and USDC regained its peg four days later. Circle can also freeze USDC when US sanctions or a law enforcement order requires it.
Why is USDC not FDIC-insured?
FDIC insurance covers deposits at insured banks when a bank fails. USDC is not a bank deposit. The reserves behind it do not carry FDIC coverage.
Which networks support USDC?
USDC began on Ethereum as an ERC-20 token, and Circle has issued it on other blockchains. Each network has its own address format and transfer rules. If you send USDC over a network the receiving wallet does not support, the funds can be stranded or lost.
Frequently asked questions
It could if Circle stopped redeeming tokens and the reserves lost their value. Trading below a dollar for a time is not the same as a total loss.
They are separate stablecoins with different issuers and reserves, so neither is automatically safer than the other.
Holding the token does not pay interest. Any yield comes from a separate platform product with its own risks.
Redemptions could pause and USDC could trade below a dollar. Holders are not insured depositors.
