Tether (USDT) is one of the most popular stablecoins that holds 1-1 value to US dollar. The coin exists on many different blockchains and has experienced rising trading volumes and improved liquidity over the past few years.
USDT allows traders to avoid market volatility that is common most of the crypto assets. Using stablecoins also removes the extra costs and delays of converting between crypto and fiat currencies.
Tether has become one of the most popular crypto-assets in the past years as well. Let’s dive into what is Tether and its role on the crypto market.
What Is Tether (USDT)?
A stablecoin Tether — known by its ticker symbol USDT — uses blockchain like all other digital coins and tokens. Unlike Bitcoin and several other altcoins such as Litecoin and Ethereum, Tether’s value is stable, essentially addressing and eliminating the volatility factor of cryptocurrencies. Instead, each Tether is backed by fiat reserves. In the case of USDT, each token is backed by 1 US Dollar.
It is interesting to see that Tether Limited, the company behind Tether, has issued tokens pegged to other fiat currencies, such as the Euro and the Japanese yen. However, we will consider the case of USDT only, which is backed by the United States Dollar reserves managed by Tether Limited.
The History of Tether
The original project behind Tether was called ‘Realcoin,’ which was announced in July 2014. Tether issued the first batch of stablecoin tokens on the Bitcoin blockchain in October. In November 2014, Realcoin was rebranded as Tether.
The Controversies behind Tether
Undeniably, Tether has had a fair share of controversies. However, it has rather effectively overcome the hurdles to stay afloat in the market successfully.
Since the beginning of the project, Tether Limited has maintained that every Tether stablecoin is backed 100% by its original currency. It meant, for every USDT stablecoins in circulation, Tether Limited had $1 in its reserve.
The company also added that users could redeem the Tether stablecoin for the fiat currency. However, these claims lacked substantial proof, sparking controversy and debate around the lack of transparency.
In November 2017, Tether Limited claimed it became subject to a hacking attack, resulting in Tether assets worth $31 million being stolen. A few months later, the company faced an intense backlash for failing to prove that substantial reserves for Tether stablecoins exist. The company was also involved in alleged price manipulation of USDT and Bitcoin.
Tether claims USD reserves back all its stablecoins. The company has since clarified that it uses traditional currencies and cash equivalents, and other assets. It further maintains that every Tether stablecoin is 1-to-1 pegged to the USD.
The Tether stablecoin offers a few advantages that typical cryptocurrencies like Bitcoin or Litecoin do not.
- Unlike Bitcoin or any other altcoin, Tether is not volatile. It means the value of the coin does not fluctuate based on the demand. In most cases, the price of each Tether stablecoin would be equivalent to $1.
- Tether is available across multiple blockchain networks. Meaning, traders can choose the network while sending or receiving Tether.
- Tether offers almost all the benefits of a cryptocurrency. For instance, you can enjoy competitive transaction fees and enhanced security. Furthermore, USDT is suitable for a wider variety of use cases. For example, many traders use Tether as the go-to option without worrying about price volatility often associated with Bitcoin and several other altcoins. Instead of cashing out the assets, a trader can easily convert the assets into USDT to stabilize the price.
- Using USDT can also give you access to cryptocurrency exchanges that do not accept cash payments. Instead of relying on cash, users can purchase the required amount of USDT tokens and do the crypto-trading transaction. On that note, we should also mention that Tether charges low transaction fees when you need to cash it out to fiat.
Due to these advantages, Tether (USDT) is a more suitable choice for arbitrage trading.
In a nutshell, Tether bridges the gap between cryptocurrencies and fiat currencies.
Here are some of the potential issues you should know about Tether.
- Unlike Bitcoin or Ethereum, Tether is not a decentralized asset. Therefore, the coin’s growth potential depends on how capable Tether Limited, the parent company, is.
- Due to the centralized nature, the Tether network asks you to compromise anonymity in some situations. For instance, selling Tether for fiat money requires an extensive KYC.
- Industry experts and veterans remain skeptical about the fiat currency reserves that Tether Limited claims to hold.