Tokenization is the process by which a real-world asset, such as USD, is made available as a crypto-native token. There are three steps to tokenizing USD into USDC:
- A user sends USD to an issuers bank account
- The issuer sends a request to the USDC smart contract to mint an equivalent amount of USDC
- The issuer makes the newly-minted USDC available to the user while holding the USD they were sent in reserve
When you redeem USDC, you essentially initiate the reverse process, exchanging a crypto-native token for the real-world asset it represents. In the case of redeeming USDC for USD:
- A user with USDC requests a redemption from a USDC issuer
- The issuer takes the user’s USDC and sends a request to the USDC smart contract to take that USDC out of circulation
- The issuer sends USD from its reserves to the user’s bank account (net of any fees)