What Is Tether (USDT)?
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What Is Tether (USDT)?

6 Min.

Tether has established itself as a highly sought-after stablecoin in the world of digital currencies. Uniquely crafted to maintain a steady one-to-one equivalence with the US dollar, this coin has garnered immense popularity. Remarkably, Tether thrives on multiple blockchains, showcasing exceptional growth in trading volumes and enhanced liquidity throughout recent years.

Similar to its stablecoin counterparts, USDT proves invaluable within cryptocurrency trading. It safeguards against the common market fluctuations experienced by BTC and other digital assets. By employing stablecoins, traders effortlessly bypass the adversities of volatility, eliminating the additional costs and inconveniences associated with converting between cryptocurrencies and traditional fiat currencies.

Basics

Within the dynamic cryptocurrency ecosystem, Tether assumes a pivotal role. By the conclusion of December 2020, Tether secured its position as the fourth-largest digital currency globally, boasting a remarkable market capitalization nearing $20 billion. This important achievement positions Tether just below the esteemed cryptocurrencies Bitcoin and Ethereum. Furthermore, Tether consistently outshines its counterparts, frequently claiming the top spot for daily trading volume, surpassing even the mighty Bitcoin. Delving deeper into the realm of Tether, one might ponder its practical utility and potential benefits.

What Is Tether (USDT)? 

In the ever-evolving realm of cryptocurrencies, Tether stands as a groundbreaking stablecoin. Introduced to the world in 2014, it is the first cryptocurrency designed to mirror the value of traditional fiat currencies. The original brains behind this innovative concept were Bitcoin investor Brock Pierce, entrepreneur Reeve Collins, and software developer Craig Sellers, who initially released it under the "Realcoin."

The Evolution of USDT: Expanding Across Multiple Blockchains

Initially built upon the Bitcoin protocol via the Omni Layer, USDT has since expanded its presence to various other blockchains. Most of its supply is now housed on Ethereum, serving as an ERC-20 token. Additionally, USDT has gained traction on numerous other blockchains, including TRON, EOS, Algorand, Solana, and the OMG Network.

The journey of Tether has been characterized by a mixture of triumphs and controversies. Particularly during its early stages, USDT witnessed some degree of price volatility, even soaring to $1.2 at certain junctures. However, since the advent of 2019, the coin has showcased considerably reduced volatility, attributed to the substantial increase in trading volume and the overall maturation of cryptocurrency markets.

How Does Tether Functionate?

In the world of cryptocurrencies, stability assumes paramount significance, differentiating stablecoins from their more volatile counterparts. Among these stablecoins, USDT garners substantial appeal owing to its unique feature of being pegged to a fiat currency. Initially, USDT was reportedly tethered precisely to the US dollar, with each USDT in circulation backed by $1.

Per the original Tether whitepaper:

Tether tokens maintain a fixed 1-to-1 ratio with a corresponding fiat currency and are fully backed by reserves held by Tether. The value of these reserves is publicly disclosed and updated on a daily basis. While the original anchoring asset for Tether was the US dollar, its scope has evolved to encompass collateral in the form of various real-world cash equivalents, assets, and receivables from loans. The coin predominantly trades at a steadfast one-to-one parity with the US dollar. However, significant market events can exert an influence on its price.

The Significance of Tether: Bridging the Gap Between Crypto and Fiat

Tether emerges as a pivotal solution that seamlessly connects the realms of cryptocurrency and traditional fiat currencies. By offering a simplified pathway for investors to secure a one-to-one exchange rate with the USD, Tether mitigates the inherent volatility associated with other cryptocurrencies.

Through the provision of stability, Tether empowers investors to hold a digital asset that mirrors the characteristics of a fiat currency while enjoying the convenience of trading it against other coins within the cryptocurrency markets. These distinctive attributes have rendered Tether a highly sought-after coin, although it is not impervious to risks.

Essential Characteristics

  1. Balanced Ratio: USDT maintains a 1:1 ratio with the USD, ensuring parity.
  2. Stability: Tether endeavors to mirror the stability of the USD, acknowledging the relative stability of the fiat currency.
  3. Versatile Availability: Tether is readily accessible across various blockchains, catering to diverse user preferences.
  4. Unique Use Cases: Tether introduces distinct use cases compared to traditional cryptocurrencies, expanding its practical applications within the digital asset landscape.

Diverse Applications of Tether

Swift Access 

In times of rapid decline in Bitcoin or other cryptocurrencies, swiftly trading into USDT provides a valuable avenue for maintaining stability and avoiding the complexities of cashing out.

Effortless Inter-Exchange Fund Transfers 

Tether streamlines fund transfers between exchanges, ensuring the seamless movement of funds with remarkable efficiency. This feature proves particularly advantageous for arbitrage trading involving various cryptocurrencies.

Trading on Crypto-Exclusive Exchanges 

Certain exchanges solely support crypto transactions, lacking fiat deposits and withdrawal provisions. By first acquiring Tether, traders gain the freedom to engage in USDT trading on these platforms without concerns about the inherent market volatility tied to BTC or other digital assets.

Forex-Like Trading Opportunities 

With USDT meticulously pegged to the USD, users can indulge in Forex-style trading by converting non-US local currencies into USDT during favorable exchange rates against the USD. Subsequently, these funds can be withdrawn into local currencies when the latter's value diminishes or is exchanged for alternative assets, broadening the horizons of investment possibilities.

Storing Tether 

Storage options for USDT extend beyond cryptocurrency exchanges, encompassing a range of crypto wallets. These include web and mobile wallets like Trust Wallet and cold storage hardware, like Ledger, facilitated through third-party software wallets. However, it is crucial to ensure seamless transfers by utilizing the same blockchain network to send and receive USDT. In such a way, USDT operating on the Bitcoin blockchain via the Omni Layer cannot be transferred to Ledger hardware wallets.

Exploring Tether's Diverse Range of Stablecoins

In addition to USDT, Tether presents an array of alternative stablecoins:

  • EURT: A Tether coin pegged to the Euro
  • CNHT: A Tether coin pegged to the Chinese Yuan
  • XAUT: A Tether coin backed by physical gold

To gain insights into the circulating supply of each coin across different blockchains, refer to Tether's Transparency page.

Conclusion

Stablecoins have revolutionized the crypto trading landscape by streamlining transactions and minimizing the need for frequent conversions between fiat currencies and cryptocurrencies. In this regard, USDT emerges as a valuable asset for seamless crypto trading operations.

Despite occasional concerns regarding the veracity of reserves, the consistently robust trading volumes observed in recent years testify to the widespread confidence in Tether's stability as a reliable stablecoin. In addition to USDT, traders can utilize alternative stablecoins like BUSD, USDC, TUSD, and PAX, further diversifying their trading toolkit.

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