Tether is a stablecoin which is fully pegged to the U.S. dollar, according to its website. This means that the value of a USDTis meant to always be equal to the value of one U.S. dollar.
- Tether (ticker: USDT) is a digital currency, also known as a stablecoin, that is pegged to the value of the U.S. dollar.
- A stablecoin is a unique category of cryptocurrency that maintains a consistent value in comparison to traditional currencies such as the U.S. dollar
- Tether Limited issues Tether and asserts to keep a reserve of actual U.S. dollars to back the value of the USDT tokens that it has distributed. This means that each USDT token is expected to always hold an equivalent value of 1 U.S. dollar.
Tether is a cryptocurrency that belongs to a group of digital assets called stablecoins. These tokens’ value is generally ties to the price of real-world currencies, like the U.S. dollar.
A stablecoin is a type of cryptocurrency that is designed in maintaining a value that is stable, usually by being pegged to another stable asset such as the U.S. dollar. The 1:1 peg of a stablecoin with its matching fiat currency ensures that they’re not subject to price volatility compared to the rest of the cryptocurrency market.
A stablecoin’s goal is providing the benefits of a cryptocurrency (decentralization and fast transactions) while avoiding the market volatility commonly associated with cryptos.
How does Tether Work?
When users want to buy USDT, they deposit fiat for Tether. Afterward, Tether issues the equivalent amount in USDT.
The Tether company issues USDT, making it unique among other cryptocurrencies. The company manages the supply of USDT in circulation and is responsible for ensuring that each Tether Token’s value is 1:1 by the fiat currency.
To ensure that each USDT has a value that is equivalent to the U.S. dollar, Tether claims to be backed by adequate reserves of fiat currency. According to them, the Tether company holds a reserve of real-world currency that is equal in value to all of the USDT Tokens in circulation. In other words, if there are 1 billion USDT in circulation, then the Tether company should hold reserves of real-world currency worth 1 billion U.S. dollars. Tether also has versions of their currency pegged to Euros, Offshore Chinese Yuan, and Gold.
The Tether company periodically publishes audits of its reserves to prove that it has the necessary amount of real-world currency and asset reserves to back all of the tokens in circulation. This intends to give users confidence that each USDT has a real-world value that ties to the traditional currency it is pegged to.
Tether Limited provides a regularly updated breakdown of its reserves on its website. According to the latest Tether holdings report published on September 30, 2022, Tether’s reserves amount to $68 billion for USDT (not to be confused with market capitalization).
Tether Is a Stablecoin
Since Tether is a stablecoin, it can maintain a consistent value that reduces its volatility. Tether promises that 1 USDT will always be traded for 1 U.S. Dollar.
The main reason people use stablecoins is to avoid the volatility that is often associated with other cryptocurrencies. Because stablecoins are pegged to real-world currencies, their value remains relatively stable. This makes them the most reliable form of digital currency during uncertain market conditions.
People tend to use stablecoins as a store of value. Since they stay pegged to real-world currencies, they can be used as the digital equivalent of the respective currency. This makes them convenient for storing and transferring value without the need to hold physical cash.
Tether’s Blockchain Technology
Tether Ltd. issues USDT on a total of ten blockchains, taking the stablecoin’s usable to multiple platforms. This allows easy integration into a wide range of applications and services.
Transactions in USDT happen quickly and easily by leveraging the power of blockchain networks. The infrastructure enables users to send funds anywhere in the globe for a fractional fee.
Blockchains ensure that every single completed transaction is accurate and traceable to its origin. Since Tether issues USDT on multiple blockchains, it doesn’t depend on a single blockchain for its operation. This makes it less vulnerable to attacks or failures on a single network.
Tether’s Use Cases
Users can utilize USDT for various purposes such as hedging against market volatility and facilitating cross-border payments. People in the crypto world use it widely for payments, trading, and investing as it offers the stability of the dollar without the need to hold it.
Tether’s peg to the dollar also makes it a useful tool for protecting wealth from crypto market volatility. Additionally, Tether can facilitate cross-border payments by providing a secure, fast and cost-effective way to transfer funds overseas. This is particularly useful for sending money to family and acquaintances abroad.
The Tether Wallet is the official mobile crypto wallet that allows users to store and access their USDT tokens. Users can utilize it on desktop and mobile devices, making it convenient for on-the-go use.
The Tether Wallet is available for download on the App Store. It also has an integrated exchange that allows users to exchange USDT for other cryptocurrencies easily. The wallet has a design that’s easy to use, even for those new to crypto scene.
Other crypto wallets that support USDT
- Trust Wallet
The Tether – Bitfinex Controversy
The association between Bitfinex and Tether has been a matter of controversy and debate among the cryptocurrency fraternity. Bitfinex, a digital currency trading platform enabling users to buy, sell, and trade various cryptocurrencies, including Tether, is an affiliate of iFinex, a holding company that manages the operations of both entities. This alliance has sparked speculation and apprehension among some members of crypto. There were concerns about the possibility of conflicts of interest between Bitfinex and Tether.
Due to the affiliation with the same holding company, crypto community raised concerns about the potential for Bitfinex having an unfair advantage in trading USDT. The concerns resulted in accusations of market manipulation and insider trading, despite the lack of evidence.
In April of 2019, the New York Attorney General’s office filed a legal complaint against iFinex, the holding company that oversees the operations of both Bitfinex and Tether. The accusations leveled against iFinex include allegations of fraudulent activities, as well as violations of New York state law, stemming from iFinex’s alleged concealment of the loss of a staggering $850 million in customer and corporate funds.
The legal proceedings showed a focus on the relationship between Bitfinex and Tether, both of which affiliate with iFinex. According to the New York Attorney General’s office, iFinex deliberately obscured the loss of these funds by utilizing funds from Tether’s reserves. The New York state considered this a law violation and an act of fraud.
Despite these accusations, both iFinex, Bitfinex, and Tether Limited have denied any wrongdoing and ultimately resolved the legal dispute by paying $18.5 million in settlement fees in May 2021. The crypto community closely watched this legal battle that caused significant market volatility at the time of its appearance.
Tether (USDT) is the stablecoin that was first launched in 2014 on Bitcoin’s Omni layer. The company later issued it on the Ethereum blockchain. Originally, it was issued with the name RealCoin in 2014, but rebranded to Tether in the month of November on the same year. Since its inception, USDT has become one of the most widely used stablecoins in the cryptocurrency realm.
The Tether company, founded by Brock Pierce, Reeve Collins, and Craig Sellars in 2014, is solely responsible for issuing and managing the market supply of USDT in the market. Brock Pierce, is a well-known figure in the cryptocurrency industry, being a vocal advocate of blockchain technology and playing a pivotal role in promoting its growth and adoption. He is also the co-founder of Blockchain Capital, a venture capital firm that invests in blockchain-based companies.
Reeve Collins, another co-founder and the former Tether CEO, has a background in finance and entrepreneurship. He has previously founded and led several successful companies in the technology and digital media sectors.
Craig Sellars, third co-founder and former Tether CTO, is a software engineer with experience in building and managing complex technology systems and has worked on a number of high-profile projects in the blockchain spectrum. He has been instrumental in the development and implementation of Tether’s technology infrastructure.
Frequently asked questions about USDT.
What backs USDT?
Tether Ltd holds reserves of real-world currency that are equal in value to all of the USDT Tokens in circulation. If there are 1 billion tethers in circulation, then the Tether company should hold reserves of real-world currency worth 1 billion U.S. dollars.
Tether’s Reserve Breakdown (as of September 30, 2022):
The Tether company regularly publishes audits of its reserves to prove that it has the necessary amount of real-world currency and asset reserves to back all of USDT in circulation.
- 82.45% in Cash and Cash Equivalents, Other Commercial Paper, and Short-Term Deposits
- 4.69% are in Funds, Corporate Bonds, and Precious Metals
- 9.02% are in Secured Loans to Unaffiliated Entities
- 3.85% are in Other Investments (Digital Tokens Included)
How Does Tether Make Money?
Because each USDT tends to have a value directly tied to the value of the real-world currency it is pegged to, Tether does not fluctuate in value like other cryptocurrencies. This means that Tether does not generate profits through USDT price appreciation like other cryptocurrencies.
Instead, Tether makes money through fees. When users want to obtain USDT, they must first buy it from Tether or from someone who already has USDT. The Tether company charges a fee for issuing new USDT. It also charges a fee for redeeming Tether for the real-world currency it is pegged to. These fees are the main source of revenue for the Tether company.
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