Whether you’re a passerby or a full trader of the crypto market, you must have heard of or transacted with USDT at some point. USDT has a reputation for being the most widely adopted stablecoin in the crypto community. Tether (USDT) is a stablecoin, a type of cryptocurrency designed to maintain a stable value relative to a specific asset or fiat currency.
In USDT’s case, the coin’s value is pegged to the value of the U.S. dollar. The goal is 1 USDT to be directly equivalent to $1. Tether is undeniably the first and the best stablecoin. It is important to understand how it works, especially as you’re bound to interact with it long-term, as long as you’re part of the crypto trading community. This article will help you understand what Tether is, how it works, what makes it unique, and if it’s a worthy investment.
Article summary
What is Tether?
Tether was founded in 2014 by American software developer Craig Sellars, Bitfinex Chief Financial Officer Giancarlo Devasini, and Philip Potter, a former Bitfinex executive. Jean-Louis van der Velde, Bitfinex’s CEO, is Tether Holdings’s parent company’s CEO. Tether (USDT) was originally launched as “Realcoin” in July 2014, then rebranded to Tether in November 2014 and started trading officially in February 2015.
USDT is one of the earliest stablecoins in the ecosystem because it was one of the first cryptocurrencies to link its value to a fiat currency. It has the highest market capitalization of all stablecoins and is pegged to the US dollar and other assets. Because of this, users can convert between USD and USDT.
The Tether website states that a corresponding reserve of assets, including US dollars, Euros, and other assets, backs each Tether token. These reserves, which are kept in bank accounts, guarantee that Tether’s value doesn’t fluctuate.
The stablecoin utilizes blockchain technology specially designed to promote the use of fiat currencies via digital means. They were initially based on the Bitcoin blockchain, but Tether now supports Ethereum, Tron, EOS, Algorand, Bitcoin Cash (SLP), Solana, Avalanche, and other leading blockchain networks. This allows USDT to be used as a stablecoin on various cryptocurrency exchanges and for other purposes, such as remittances and payments.
One of the primary use cases for Tether is as a trading pair on cryptocurrency exchanges. It can be difficult for traders to value their positions due to the high volatility of most cryptocurrencies. By using Tether as a trading pair, traders can hold their positions in a stablecoin rather than a cryptocurrency whose value may fluctuate rapidly. As a result, traders may find it simpler to manage risk and make better trading choices.
Another use case is as a means of payment. Because Tether has a dollar peg, it can be used to make transactions denominated in U.S. dollars but settled on the blockchain. This can be useful for businesses that want to use cryptocurrency as a means of payment but want to avoid dealing with the volatility of other cryptocurrencies.
It is worth noting that Tether has been mired in controversies regarding the transparency of its reserve and ownership structure, leading to doubts about its real backing. The company has also faced legal challenges and investigations, raising questions about its long-term ability to maintain its dollar peg. This has led to skepticism among some in the crypto community about the actual value of Tether and whether it is a safe investment. Regardless, it still presents a safe option as a trading pair and offers seamless means of payment via blockchain.
How Does Tether Work?
Tether is a stablecoin created using blockchain technology, specifically the Omni Layer Protocol on the Bitcoin network. Unlike cryptocurrencies like Bitcoin or Ethereum, whose value can be highly volatile, a stablecoin is a type of cryptocurrency meant to maintain a stable value.
Tether has now been hosted on the Ethereum blockchain and, as already indicated, is supported by other blockchain networks. Because USDT tokens are now using different transport protocols, users need to be careful and confirm the destination address to ensure that it doesn’t get lost or mixed up. Tether is distinctive in that it is pegged to the value of the US dollar, which means that each USDT is backed by a corresponding US dollar held in reserve by the Tether company.
The Tether company issues new tokens by creating a smart contract on the blockchain and sending USD to a designated address. By doing this, a fresh Tether token is created and sent to the USD-sending address. To redeem Tether tokens for USD, the holder sends them to the designated address, where the smart contract verifies that the Tether tokens are legitimate and sends the corresponding USD to the holder.
Because USDT is built on top of the blockchain, it has the transparency and security benefits of using blockchain technology. All transactions on the blockchain are recorded on a public ledger, making it easy to verify that Tether tokens are backed by real USD. Additionally, because Tether is decentralized and built on the blockchain, it is not controlled by any single entity and is resistant to censorship.
What Makes USDT Unique?
Tether (USDT) is a stablecoin, a type of cryptocurrency pegged to the value of another asset, in this case, the US dollar. This means that for every USDT token issued, there is an amount of U.S. dollars in reserves, proportional to the tokens issued. Holding these reserves ensures that the value of USDT remains stable and does not experience as much volatility as other cryptocurrencies.
A key factor in USDT’s widespread adoption is the fact that it is accepted on a large number of cryptocurrency exchanges. Tether is used as a “bridge currency” that allows traders to move funds between different exchanges without having to go through the process of converting their assets to fiat currency first. This makes trading easier and more flexible in terms of investment strategies.
Another unique aspect is that it is issued on a blockchain. This makes Tether more transparent regarding the reserves held to back the USDT tokens in circulation. Tether Limited, the company that issues Tether, regularly publishes transparency reports that provide information on the reserves held and the number of Tether tokens in circulation.
USDT is also unique in that it is one of the few stablecoins that has been around for a long time, since 2014. It is also considered the most used stablecoin in the crypto market. This has made it more trusted amongst traders and investors, making it a no-brainer option in being used as a stable store of value.
- Stability: Its value is relatively stable because of its asset reserves, unlike other cryptocurrencies. This is great for traders who want to avoid the general volatility of most coins in the market.
- Liquidity: Tether is the highest-traded stablecoin in the worldwide crypto market and is used as a trading pair on almost all existing exchanges. This makes it easier to buy and sell USDT than other coins that are limited to a few exchanges.
- Utility: It can facilitate blockchain transactions and be used as a store of value.
- Centralization: Tether is controlled by a single company, Tether Limited. This means that if something happened to the company, it’d impact USDT significantly (think TerraUSD).
- Transparency: Tether Ltd. has come under fire for its lack of transparency regarding its asset reserves and their correlation to the Bitfinex company. These issues have raised concerns about whether Tether can comfortably maintain its dollar peg.
- Risk: As with any digital token, Tether can likely be hacked or stolen, and its value can change at any time if anything happens to its reserves or the holding company.
Is Tether A Good Investment?
Tether as a stablecoin means that its value is pegged to the value of the U.S. dollar. Because of this, it can be used both for storing value and as an investment vehicle. Investment is not Tether’s strong suit as a use case because it doesn’t directly increase in value. However, it’s an excellent choice for storing value if you’re looking to escape the market’s volatility while still being in the market.
It is still important to note that USDT has experienced controversies and legal challenges, which may impact its future. While we have provided the critical metrics, don’t forget to do further research to help you calculate your risk tolerance and determine if it’s the right choice for you.
Ebiere Watchman is a prolific writer specialized in web 3.0 and finance. Ebiere’s experience includes research projects, sales copywriting, and storytelling. She prides herself in crafting impeccable content to drive mass adoption in cryptocurrency.
