You will notice that usually, Tether usually maintains a value of $1 USD. This is what this stablecoin is designed to do, with minimal fluctuations.
What factors impact the Tether price? Fluctuations may result from the US Dollar itself rising or falling in value, supply and demand, and news events that impact the markets.
What Is Tether USDT
The Tether cryptocurrency (USDT) is supposedly tied to the US dollar at a 1:1 ratio, meaning that it should be traded at the stable rate of 1 tether coin for 1 US dollar. Singular units of the cryptocurrency are called “tethers” or “tether coins.” It is described as being fully backed by the real-world reserves of the US dollar.
However, price of a stablecoin can also fluctuate. For example, tether dropped below USD 0.90 in October 2018 before recovering to almost USD 1 again. In either case, it’s still more stable than other cryptocurrencies.
Also, many investors question tether’s peg to the US dollar despite Tether has sought to reassure the community by repeatedly saying that each USDT in circulation is backed by US dollars in its bank account. However, the company has failed to provide conclusive evidence, such as a formal audit, that would back up its claim.
Tether coin’s history started with its predecessor Realcoin, which was presented by Brock Pierce, Craig Sellars and Reeve Collins back in 2014. Soon afterwards, the coin’s name was changed to what it is now.
If you are looking for a cryptocurrency that helps you avoid some of the extreme volatility of the crypto markets, you might consider Tether (USDT). This crypto is the most well-known stablecoin. Its value is “tethered” (pegged) to the US Dollar (USD), hence its name.
This post will serve as your in-depth introduction to Tether. We will explain exactly what Tether is, how it works, how to buy and store it, its risks and challenges, and more.
How Does Tether Work?
You now know that each USDT is pegged 1-to-1 with 1 USD. But what does that mean in real terms? How does the pegging work?
The answer is Tether’s reserves, which back its stablecoins. Every day, Tether publishes a report on the value of its reserves to ensure transparency.
Nevertheless, Tether’s history is not entirely positive concerning its reserves. The US Commodity Futures Trading Commission (CFTC) charged Tether with lying about its reserves in the past. It was discovered that rather than the reserves being cash or equivalents, they instead took the form of high-risk investments (i.e. other cryptos). These findings resulted in Tether paying a fine of $41 million.
Tether remains a popular and (largely) stablecoin, but needless to say, this incident eroded trust in USDT somewhat.
In this white paper, you can learn about Tether’s three-layer technology stack, consisting of the Bitcoin blockchain, an Omni Layer protocol (Omni functions as the embedded consensus system), and Tether Limited. The Tether platform uses Omni Protocol, the open source software which allows it to interact with blockchain.
How is Tether used? The exceptional stability and liquidity of Tether make USDT an excellent choice for individual transfers as well as transactions between merchants and consumers. Additionally, Tether is actively traded at a high volume in the crypto markets.
With volatile cryptos like Bitcoin, many individuals and businesses may not want to hold their money as cryptos, fearing lost value. But with USDT, large fluctuations are less likely. This makes it possible to convert back to USD (or another currency) at one’s leisure, rather than rushing to do it the instant one receives a crypto payment.
Who Created Tether?
The history of Tether dates back to 2012, when J.R. Willett came up with the idea of creating a new crypto called Mastercoin. Tether was built in 2014 on Mastercoin’s protocol by founder Craig Sellars and co-founder Brock Pierce.
Tether Market Performance
At the time of this writing, the market cap for Tether is $92,348,734,709, and the 24-hour trading volume is $66,349,056,640.
This ranks Tether 3rd among cryptocurrencies, putting it directly behind Bitcoin (which is ranked as #1) and Ethereum (which is ranked as #2).
How to Buy and Store Tether
If you want to purchase and store Tether, you will need two things: a crypto exchange, and a crypto wallet.
- Your crypto exchange is where you can buy and sell Tether and other stablecoins and cryptos.
- Your crypto wallet is where you can store Tether and other stablecoins and cryptos.
Tether is available to buy and sell just about anywhere; due to its high trading volume, you have your pick of crypto exchanges. Many exchanges also offer wallets, so you can buy, sell, and store your cryptos all in the same place.
Here are the steps to buying and storing Tether:
- Open an account on a crypto exchange.
- Verify your account by submitting the required documents.
- Transfer money to your crypto exchange account using a deposit method of your choice.
- Purchase Tether on the exchange.
- If you are using an external wallet, connect the wallet so that you can store the Tether there.
You can sell your Tether for US Dollars or another crypto or fiat currency if you want to convert from USDT.
How Tether Tokens are Created and Burned
One person alone cannot create and issue Tether tokens, thanks to a multi-signature model. This system helps to preserve the security of Tether. Instead, multiple private authorization keys are needed.
Directly following their creation, new Tether tokens remain in the Tether treasury. Only when market demand requires their release are they issued.
It is also important to know that Tether tokens are burned sometimes once a person holding them chooses to convert to a different crypto or a fiat currency. Rather than sending them to an inaccessible address, Tether returns them to the treasury. That way, they can issue them again if market demand warrants it in the future.
The Future of Tether
Whatever the future of Tether, one thing is certain, and that is that USDT’s health is critical to the crypto ecosystem as a whole.
Speaking to the New York Times, Professor Hilary Allen, a finance expert at American University, said, “Tether is really the lifeblood of the crypto ecosystem. If it imploded, then the entire facade falls down.”
She continues, “In a worst-case scenario, critics say, a downturn could spark the crypto equivalent of a bank run.”
That is why it is a good thing the CFTC decided to crack down on Tether’s reserves. Hopefully, with stronger government oversight, Tether will be forced to maintain its reserves as cash or equivalents, reducing the chances of a collapse.
Recently, Tether has focused on increasing its security, introducing a voluntary wallet-freezing policy. This will bolster the overall safety of the stablecoin ecosystem.
Risks and Challenges
As we discussed above, a big risk with Tether is if the reserves it is tied to are not stable, the stablecoin itself may lose value or even crash. So, it is essential to have cash or cash equivalent reserves.
Like other cryptocurrencies, Tether exists in a murky regulatory zone as well, which introduces further uncertainties. That being said, this is one of the top cryptos regulators will show an interest in over the coming years, given its significance to the markets.
Another risk facing USDT is USD Coin (USDC), a competing stablecoin. USDC has not been embroiled in as many legal hassles as Tether, which has led to an increase in its popularity over the past few years.
Other stablecoins are lagging behind USDC and USDT, but could start catching up if trust does not rebuild quickly in USDT. We will discuss these competing stablecoins more later on in this post.
Additionally, Tether has a history of blacklisting addresses, which may make some investors nervous about holding it.
Regulatory and Legal Aspects of Tether
The parent company of Tether Limited is iFinex. This company in turn is based in the British Virgin Islands.
As you know, the CFTC took action against Tether in 2021 because of the issue involving the company’s reserves. Also, Attorney General Letitia James filed a lawsuit against iFinex for fraud in 2019, which resulted in an $18.5 million settlement.
So, regulators are keeping a close watch on Tether. If anything, we expect this regulatory oversight to increase in the future.
Again, that is not a bad thing, given Tether’s role in the economy. Regulatory involvement in Tether will ultimately increase trust in the stablecoin, which should facilitate its adoption even further.
Tether claims to take regulations seriously, stating, “Tether maintains world-class standardized compliance measures for anti-money laundering (AML), countering the financing of terrorism (CFT), sanctions, and know your customer (KYC) laws and regulations.”
Tether is available in most jurisdictions around the world. But you may not use Tether if you are in any of the following regions: Cuba; the Democratic People’s Republic of Korea (North Korea); Iran; Pakistan; Singapore; Syria; the Government of Venezuela; and Crimea.
Community and Ecosystem
Tether has drawn a passionate community of enthusiasts thanks to its sophisticated technology and superlative convenience.
Integration of Tether is easy thanks to a wide range of supported blockchains, including not just Bitcoin and Ethereum, but also Avalanche, EOS, Polygon, TRON, Algorand, Kava, Polka, Solana and Tezos.
Tether pays close attention to which blockchains are being utilized, adding and removing support as required to adapt to the community’s changing needs. By discontinuing support for blockchains that are no longer getting a lot of traction, they can allocate more resources to those that are.
If you want to get to know other Tether enthusiasts, you can find communities built around the stablecoin on social media platforms.
Comparing Tether to Other Cryptocurrencies
Apart from looking to increase its market capitalization and share, Tether faces competition from other stablecoins such as TrueUSD, Dai and others. Now let’s discuss how Tether compares to some other cryptocurrencies, starting with its competitor USDC.
Tether’s transparency has increased since the CFTC levied its fine. But USDC is considered to be the more transparent of the two stablecoins. Nevertheless, Tether is still beating USDC when it comes to liquidity. It remains ahead of USDC in terms of trading volume as well. USDC’s market cap is $25,013,229,679, which comes in well below USDT’s market cap of $92,348,734,709.
While USDC is Tether’s closest competitor, the next runner-up is Dai (DAI), which has a market cap of $5,342,159,298. Unlike USDT and USDC, DAI is decentralized. Like USDC, DAI has a stronger reputation for transparency than USDT does.
The next major competitor with USDT and the other major stablecoins is TrueUSD (TUSD), which has a market cap of $2,303,768,606. While it is not in widespread use to the same degree as USDT or USDC, it is liquid and transparent.
Right now the biggest advantage of USDT over its competitors is simply its high market cap and trading volume. Its biggest drawback is the reduced trust associated with the reserves issue from a few years ago.
How To Get Tether USDT
Buying and selling Tether coins is rather straightforward, as the coin is supported by several international crypto exchanges such as Poloniex or Kraken which support it as part of appropriate trading pairs.
The Tether family also includes a Euro counterpart (denoted as EUR₮), and the support for the Japanese yen is currently being worked on.
To conclude our post about Tether, let’s answer a few frequently asked questions you may have about this popular stablecoin.
Q: How much is 1 Tether to buy?
A: Assuming you are using US Dollars to purchase Tether tokens, you can generally buy 1 Tether for $1 USD. By design, Tether is pegged to the US Dollar. Its value against the US Dollar is relatively stable.
Q: Is Tether actually safe?
A: Tether is reasonably safe; it performs as expected, with the value of 1 USDT being roughly $1 USD most of the time with only minor fluctuations.
Some people do fear that Tether could crash, given what happened in 2021 with the CFTC’s findings about its reserves, however, and it is important to note that holding and using crypto always entails a degree of risk.
Q: What is Tether used for?
A: Like other cryptocurrencies, people can use Tether to send or receive money or payments. Tether works well to convert between digital and fiat currencies. Also, you can opt for Tether when you want to hold digital currency, but avoid the volatility of other cryptos.
Q: Why would anyone buy Tether?
A: Although trust in Tether is not what it used to be, it is still considered a liquid, reliable, and stable option. As a result, it is still in widespread use.
Q: How is Tether always $1?
A: Tether is always $1 because it is pegged directly to cash and cash equivalent reserves.
Q: Who can use Tether?
A: Anyone can use Tether, including individuals and businesses. If you need a non-volatile crypto token to hold or to send or receive digital funds, then Tether may be a suitable fit for your requirements.
Tether coin is the most popular and controversial stablecoin, a cryptocurrency tied to a stable asset such as gold or units of a fiat currency. In addition to bringing the innate stability of fiat currencies to the market, Tether aims to offer easier and faster currency conversion and streamlined handling of digital payments on a global scale.
Tether News: Read the latest news about Tether here.