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What Is Tether USDT?

Posted on Aug 26, 2023
What Is Tether USDT?

Tether (USDT) holds the distinction of being the largest stablecoin by market capitalization in the cryptocurrency world. Its primary function is to provide a stable bridge for transactions between various cryptocurrencies and traditional fiat currencies. Established by iFinex, a Hong Kong-registered company that also owns the crypto exchange BitFinex, Tether was initially introduced as RealCoin in July 2014 and later rebranded as Tether in November of the same year. This stablecoin is uniquely pegged to the U.S. dollar and is touted to be backed "100% by Tether's reserves," as stated on its official website.

Originally built on the Bitcoin blockchain, Tether has expanded its compatibility and now operates on various protocols, including Bitcoin's Omni and Liquid protocols, Ethereum, TRON, EOS, Algorand, Solana, and Bitcoin Cash (SLP) blockchains. Notably, as of January 2023, Tether claimed the third position in the cryptocurrency hierarchy, trailing only Bitcoin (BTC) and Ethereum (ETH) in terms of market capitalization. With a market cap nearing $68 billion, Tether's USDT played a pivotal role in many high-value exchanges throughout 2022, solidifying its status as the premier stablecoin choice for traders and investors alike. This stability, coupled with its broad adoption, positions Tether as a crucial component within the ever-evolving crypto landscape.

What Is A Stablecoin?

Stablecoins, such as Tether, offer a digital asset characterized by minimal volatility, typically maintaining a consistent valuation. These stablecoins are anchored to steady assets like gold, the U.S. dollar, or other fiat currencies, ensuring that the coin's value strives to remain equivalent to its peg.

"The fundamental concept is that 1 Tether is always exchangeable for $1, regardless of the prevailing market conditions," explains Steve Bumbera, co-founder and principal developer of Many Worlds Token.

As of now, Tether stands as the largest stablecoin, contributing to approximately 53% of the total market capitalization of stablecoins. The second-largest stablecoin, USD Coin (USDC), commands around 31% of the market share, closely followed by Binance USD (BUSD).

The significance of stablecoins like Tether in the crypto sphere lies in their role in furnishing unwavering and dependable liquidity for navigating in and out of cryptocurrency trades. This liquidity provision shields traders from unforeseeable losses triggered by the erratic price fluctuations synonymous with the crypto market. This stability and predictability amplify the allure of stablecoins among traders and investors alike.

How Does Tether Work?

The stability inherent in Tether finds its origins in its robust reserve structure. The company asserts that it possesses dollars and other assets equivalent to or surpassing the total count of USDT tokens in circulation. Essentially, for each Tether token released into circulation, the company asserts its ownership of one dollar within its reserves, denominated either in liquid currency or akin to assets like short-term bonds and time deposits.

Tether maintains a transparent stance by regularly disclosing its reserve quantities versus the outstanding USDT tokens on its official website. Nevertheless, inquiries and disputes have emerged around Tether's reserve holdings, with scrutiny from regulatory bodies such as the Commodity Futures Trading Commission (CFTC) and the New York Attorney General focused on the company's reserve practices.

Interested investors can seamlessly acquire Tether across major cryptocurrency exchanges. When a $100 investment is directed towards Tether, roughly 100 USDT tokens are conferred, concurrently augmenting the company's reserves by $100 to uphold the essential 1-to-1 dollar peg. The Tether tokens are effectively withdrawn from circulation and eliminated when users choose to exchange them for traditional fiat currency.

Unlike possessing its autonomous blockchain, Tether instead facilitates its tokens via third-party blockchains. The current hosts for USDT tokens encompass:

  • Ethereum - USDT Erc-20
  • Tron - USDT Trc-20
  • Binance Smart Chain - USDT Bep-20

The dynamic interplay of Tether's collateralized reserves and its strategic token issuance on select blockchains underscores its pivotal role as a stabilizing force in the cryptocurrency landscape.

Tether History

The history of Tether dates back a decade, originating from the innovative ideas of J.R. Willet. Willet's exploration of building new cryptocurrencies using the Bitcoin protocol culminated in the inception of Mastercoin, where one of its early members eventually co-founded Tether in 2014.

Tether swiftly gained traction as a vehicle for liquidity when it became integrated into the BitFinex exchange in January 2015. However, the journey hasn't been without challenges. In November 2017, Tether reported a theft of $31 million worth of USDT tokens, a situation that led to a subsequent hard fork.

As Tether aimed to stabilize its value through a 1-to-1 peg to the U.S. dollar, it encountered scrutiny regarding its reserves. These questions coincided with the company facing difficulties accessing banking services.

Notably, in April 2019, the New York Attorney General obtained a court order against Tether and BitFinex parent company iFinex. This order followed an investigation that revealed BitFinex's borrowing of around $700 million from Tether's reserves to address frozen funds linked to its Panamanian banking partner Crypto Capital Corp. The situation raised concerns about the company's financial practices.

In the years that followed, Tether navigated legal complexities. By February 2021, Tether and BitFinex reached settlements, involving fines and commitments to share information about their reserves with regulatory bodies.

Further developments arose in October 2021 when the U.S. Commodity Futures Trading Commission (CFTC) announced Tether's agreement to pay a substantial fine due to discrepancies in reserve backing. Tether's stability was tested in May 2022 when the value briefly declined, attributed to the collapse of another stablecoin issuer's value. Tether, however, swiftly rebounded, adhering to its commitment to honor redemption requests in alignment with its peg.

In its efforts to broaden its reach, Tether expanded its offerings to include stablecoins backed by other fiat currencies, such as the Mexican peso, while continuing its presence on various blockchains.

Through its journey, Tether remains a significant presence in the cryptocurrency space, characterized by both accomplishments and challenges that have shaped its role within the broader digital asset landscape.

How Is Tether Useful?

Stablecoins continue to be a favored preference among cryptocurrency traders, with Tether having navigated through controversies concerning liquidity and the sufficiency of its reserves.

As recently as 2022, the company's disclosures regarding its reserves remained somewhat opaque. Tether's website, at one juncture, offered minimal elucidation, merely stating that "All Tether tokens maintain a 1-to-1 relationship with a corresponding fiat currency and are fully backed by Tether's reserves."

Adam Carlton, CEO of Pink Panda, a crypto wallet provider, highlights that Tether's historical transparency regarding its backing has encountered periods of obscurity and inconsistency.

"The coin's past is marked by legal uncertainties, and even presently, the visibility into its actual reserves remains unclear and is believed to substantially comprise unidentified origins of commercial paper," Carlton observes.

Other cryptocurrency experts acknowledge that there is a certain level of acknowledgment within the crypto sphere that Tether might not possess full collateralization.

"The market has grappled with this notion of the extent to which they are comfortable; it's widely recognized that Tether isn't tethered solely to dollars," notes James Putra, Vice President of Product Strategy at TradeStation Crypto.

What is USDT payment?

USDT payment refers to making a payment using the cryptocurrency Tether (USDT). Using USDT for payments allows individuals and businesses to transact in a digital currency that is designed to maintain a consistent value similar to the U.S. dollar. This can help mitigate the volatility often associated with other cryptocurrencies like Bitcoin or Ethereum. USDT payments can be made for various goods and services, including online purchases, remittances, investments, and more. The appeal of USDT payments lies in their potential to combine the benefits of cryptocurrencies (such as fast and borderless transactions) with the relative stability of traditional fiat currencies.

How does Tether payment work?

If you're considering enabling Tether transactions for your business, you'll first require a Plisio cryptocurrency merchant wallet with support for USDT.

To facilitate Tether transactions from your customers, integrating a cryptocurrency payment gateway into your website, platform, or application becomes imperative. A notable option, such as Plisio, offers the ability to generate multiple invoices and effectively manage an array of corporate transactions within various wallets.

Upon receipt of Tether payments, you're presented with a choice: retain the received USDT in the relevant wallet or opt to convert it into an alternate currency. Numerous exchanges and online wallets furnish the possibility to convert Tether into diverse cryptocurrencies or traditional fiat currencies like US dollars, euros, or pounds. This flexibility underscores the adaptability of Tether as both a means of transaction and a potential asset diversification strategy.

As you navigate the realm of Tether payments for your business, it's advisable to prioritize secure and trusted wallets, seamless integration of payment gateways, and an understanding of the potential conversion options available to you.

Tether vs. Bitcoin

As stated by Daniel Rodriguez, the Chief Operating Officer at Hill Wealth Strategies, a notable distinction between TetherUSD and Bitcoin lies in their anchoring principles. Tether finds its foundation in a non-cryptocurrency asset, namely the U.S. dollar. Conversely, Bitcoin derives its value solely from the dynamics of supply and demand for BTC.

Moreover, Tether operates as a centralized cryptocurrency, while Bitcoin operates in a decentralized manner. This inherent contrast contributes to Tether's perceived stability when juxtaposed with Bitcoin.

Cryptocurrencies that lack ties to real-world assets or currencies remain susceptible to market volatility. Conventional cryptocurrencies like Ethereum and Litecoin (LTC) are known for experiencing significant oscillations in response to market fluctuations, inflation, and shifts in interest rates.

Rodriguez elaborates, noting that Tether exhibits a relatively higher level of stability due to its propensity to closely shadow the value of one U.S. dollar, with minor variations. He clarifies that Tether isn't primarily designed for profit generation; rather, it strives to serve as a dependable repository of value.

In summary, Rodriguez's insights underscore the contrasting mechanisms driving Tether and Bitcoin, highlighting the former's endeavor for stability and its association with the U.S. dollar, in contrast to the decentralized, market-driven nature of Bitcoin.

Is Tether a Good Investment?

Stablecoins such as Tether don't align with the traditional concept of investment, as their purpose is not to accrue value. Instead, they function as a repository of value, ensuring that the value of one USDT coin consistently equates to one U.S. dollar.

Beyond their role as a reliable store of value, Tether serves as an invaluable tool for conducting business with greater simplicity compared to Bitcoin.

The intrinsic nature of Bitcoin, characterized by its price fluctuations, creates complexities for businesses attempting to establish pricing structures. According to Bumbera, "The value of one Bitcoin today might significantly differ from its value tomorrow, making the establishment of pricing frameworks centered solely around BTC remarkably challenging."

One notable rationale for holding a stablecoin like USDT, as suggested by Bumbera, is the desire to engage with the crypto space while circumventing volatility. Nonetheless, even when tethered to the U.S. dollar, the safety of Terra as an investment remains uncertain.

Bumbera adds a cautionary note, highlighting the potential risks such as Tether's devaluation or the use of an illegitimate staking platform.

While Tether asserts an unblemished track record in honoring redemption requests from verified customers, it's essential to recognize that no guarantees exist in the realm of investments or cryptocurrencies.

Furthermore, cryptocurrency enthusiasts should remain attentive to the evolving regulatory framework governing digital assets. As LoPresti emphasizes, the trajectory of Tether and other stablecoins hinges on transparency, the adequacy of collateral, and liquidity. Regulators are likely to direct their scrutiny toward these aspects of the digital asset economy, especially in the aftermath of the TerraUSD collapse.

In conclusion, the dynamics of stablecoins like Tether encompass their distinct role as value repositories, offering an alternative to the investment objectives commonly associated with traditional cryptocurrencies.

Tether finds its primary utility in facilitating the conversion of cryptocurrencies into fiat currencies, a measure employed to mitigate the risk of slippage, which involves the depreciation in value that can occur between the commencement and completion of a transaction. Nonetheless, instances emerge when Tether's alignment with the designated fiat currency peg isn't consistently maintained. An illustrative incident unfolded when the FTX exchange encountered a collapse in November 2022. During this period, Tether underwent a drastic drop, descending to an approximate value of $0.995. However, Tether's resilience was evident as it swiftly rebounded, at times even surpassing the anticipated 1-to-1 peg, a trend that persisted into January 2023. This episode exemplifies the nuanced dynamics that can impact the stability and alignment of Tether with its pegged fiat currency during exceptional market conditions.

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Any questions?

Tether (USDT) is a type of cryptocurrency known as a stablecoin, designed to maintain a value closely pegged to the U.S. dollar.

Tether maintains its value by backing each USDT token with an equivalent amount of real-world assets, typically in the form of fiat currency reserves, like the U.S. dollar.

Tether serves as a stable bridge between the world of cryptocurrencies and traditional fiat currencies, providing a reliable way to conduct transactions without being affected by the volatility often associated with other cryptocurrencies.

Tether payments involve sending USDT tokens from one wallet to another. Each USDT token represents a stable value of approximately one U.S. dollar.

Tether is primarily designed as a stable store of value rather than an investment vehicle to generate profits. Its value remains relatively constant, unlike other cryptocurrencies subject to price fluctuations.

Tether claims to be backed 100% by reserves, which include cash or cash equivalents. However, questions have arisen regarding the transparency and sufficiency of these reserves.

Tether is a stablecoin tied to a fiat currency, while Bitcoin is a decentralized cryptocurrency whose value depends solely on supply and demand.

Yes, many exchanges and online wallets allow you to convert Tether into other cryptocurrencies or traditional fiat currencies like USD, EUR, or GBP.

Yes, Tether has faced regulatory investigations and controversies regarding its reserves and transparency. Its future could be influenced by regulatory developments in the cryptocurrency space.

Tether offers stability within the crypto market, providing a safe haven against extreme price fluctuations. Its use spans from facilitating transactions to providing a secure asset storage option in the crypto ecosystem.