The introduction of decentralised finance opened the crypto space to a more improved and innovative way of transacting across several chains without needing KYC.
Many cryptocurrencies are traded within the DeFi space, and thousands of transactions are processed in minutes. USDC, a stablecoin like USDT, BUSD, and many others, have unique use cases in the DeFi space.
This piece focuses on six USDC use cases in decentralised finance and some of the market features that make it unique and usable in DeFi.
What is USDC?
USDC falls into the category of coins in the crypto space called stablecoins. They are pegged to the US dollar and are designed to maintain a 1:1 ratio for each coin versus the US dollar.
Like many other stablecoins, USDC’s value is usually stable and not affected by market volatility, making it a viable transaction instrument in the decentralised world.
Overview of DeFi
Decentralized finance is an innovation leveraging blockchain technology to bring financial solutions like borrowing, trading, lending, and many others to users while eliminating the various roadblocks encountered by users in traditional finance.
Among the many features of decentralised finance that make it easier for users to transact is the level of control users have over their funds, ease of access, and security that it offers. USDC plays a pivotal role by serving as a stable instrument for transactions on decentralized platforms.
Let us now consider six use cases for USDC in decentralised finance.
Use-Case 1: Liquidity Provision
USDC can be used to provide liquidity for many DeFi protocols. Liquidity is important for DeFi protocols and platforms to facilitate transactions. Many of these platforms allow users to farm rewards on their platforms in exchange for adding to their liquidity pool via staking.
Users can also get their rewards paid in USDC, but this is dependent on the DeFi platforms they use.
Use-Case 2: Lending and Borrowing
Lending and borrowing are some of the most prominent features of many decentralised protocols or platforms. Users can lend their USDC assets to borrowers for some time in exchange for interest rewards at the end of the period.
Users can also borrow USDC on many decentralised platforms by submitting some of their other crypto assets as collateral.
Both borrowing and lending in DeFi look similar to loans issued by commercial banks, but DeFi eliminates the interference of third parties and ensures a faster transaction.
Use-Case 3: Payments and Remittances
USDC is used across several DeFi platforms to process payments. The stability of its price and the elimination of third parties in transactions make it more convenient to use for payments than the traditional banking system.
Use-Case 4: Yield Farming
Many DeFi platforms allow users to stake USDC and earn rewards after a period. Since the price of USDC is stable, users can know the exact reward they will get after the staking or farming period, and DeFi platforms usually have a set percentage of rewards corresponding to a period of staking.
Use-Case 5: Decentralized Exchanges (DEXs)
USDC can facilitate swaps and exchanges on DeFi platforms. Due to its price stability, it is often paired with other coins for trading, such as SOL/USDC.
Use-Case 6: Collateral in DeFi Protocols
USDC is useful as collateral in many DeFi protocols. Due to its stable price, it helps in loan security and other financial activities in the DeFi space. This helps reduce liquidations and provides a strong background for DeFi applications.
Frequently Asked Questions (FAQs) About USDC’s Role in DeFi
How does USDC differ from other stablecoins?
USDC is backed up by dollar reserves that are audited regularly, ensuring its safety.
What makes USDC suitable for use in DeFi?
USDC is suitable for use in DeFi majorly because its price is usually not affected by market volatility.
How can I earn interest using USDC in DeFi?
Many DeFi platforms allow users to stake USDC in exchange for rewards over a set period.
Can I use USDC for everyday transactions?
Yes. Many decentralised platforms allow you to transact with USDC across multiple chains every day.
Is using USDC in DeFi safe?
Although USDC is safe and secure, the safety of its use in DeFi depends on the protocol or platform on which it is used.
Conclusion
USDC plays many roles in decentralized finance. From liquidity provision to payments and remittances to collateralisation, USDC is instrumental in the growth of DeFi.
As DeFi continues to grow, the relevance of USDC is likely to increase. A perfect understanding of the capabilities of USDC can give room for users to leverage its many use cases and be profitable with it in the DeFi ecosystem.
