As the dominant stablecoin ( stable cryptocurrency ) used in bitcoin and cryptocurrency exchanges, Tether has grown in importance. Here we explain how USDT works and discuss the company’s run-ins with the law.
What is Tether?
Tether, whose symbol is USDT, is the most popular stablecoin. Tether is a tokenized version of the US dollar, which means it is pegged to the US dollar at a 1:1 ratio. It is this relationship with the US dollar that keeps the value of this coin “stable”.
Tether has been ranked as the third or fourth largest cryptocurrency with a market capitalization of over $30 billion and is often the most traded altcoin .
Besides being the name of the stablecoin, Tether Limited is also the name of the Hong Kong-based private company that issues Tether coins.
What is a stablecoin?
A stablecoin works differently from cryptocurrencies like Bitcoin because its price does not fluctuate based on market forces, its value is tied to a fixed currency. Tether is pegged to the US dollar (hence the symbol USD.T).
Stablecoins are not mined like a cryptocurrency and are not decentralized but issued in response to demand from users planning to use them in cryptocurrency exchanges.
What is Tether used for?
Its main goal is to make cryptocurrency trading easier and cheaper. In 2021, more than 75% of bitcoin exchanges are done in Tether. Although some people invest in Tether, it is mostly used for liquidity and to hedge against volatility when trading other cryptocurrencies like Bitcoin.
There are a number of reasons for using a stablecoin like Tether, most of which relate to the shortcomings of cryptocurrency trading using another volatile crypto asset or a normal currency like the dollar, euro, or Swiss franc.
- Fiat currencies involve going through the slow and relatively high-fee banking sector.
- On the other hand, it is difficult to invest in a cryptocurrency if the crypto-asset you used to buy it is also volatile. Trading one cryptocurrency against another cryptocurrency is more like forex trading than investing.
Who uses Tether?
- Foreign investors who do not have US dollar bank accounts.
- Cryptocurrency traders who want to keep their accounts in a cryptocurrency that retains its value.
- Any cryptocurrency trader who wants to trade with reduced fees.
How does Tether stay at $1?
How Tether maintains its dollar value has become a growing source of controversy. Tethers are supposed to be issued by Tether Limited on a one-to-one basis when a customer deposits US dollars. The value of Tether in dollars (USDT/USD) fluctuates, but tends to stay very close to one.
How does Tether take money?
Hypothetically, you, the investor, want to buy bitcoins using a stablecoin. You can contact Tether Limited and deposit 0,000 with them and they will give you 0,000 in exchange. Suppose your cryptocurrency trading went well and you made a 2X trade in Bitcoin and doubled your money. You sell your Bitcoin position for 200,000 USDT and then withdraw 0,000 to your bank account.
How to buy Tether?
Most individual cryptocurrency traders buy Tether from a cryptocurrency exchange like Binance, Kraken, or Coinbase. You open an account with one of these or other companies, deposit some fiat currency, and use it to buy Tether or any other cryptocurrency.
How to store Tether?
Although USDT is on a global exchange, it can be traded for other cryptocurrencies. To store Tether away from the exchange on the blockchain , Tether hodlers will use a cryptocurrency wallet such as Trezor, Ledger, Exodus, or Mycelium to keep their coins as safe as possible when they don’t plan to use them. for cryptocurrency exchanges.
Is Tether secure?
Tether has been used in cryptocurrency exchanges worth billions of dollars and there have been very few, if any, reports of people having trouble getting their money back in US dollars when they want it. If such a problem were to become common, the resulting loss of trust would cause users not to use it.
USDT vs USDC
USD Coin (USDC) is the biggest rival to Tether (USDT) as a stablecoin. USD Coin was launched in 2018 by Circle and Coinbase through a joint venture called Center Consortium. Just as Tether is tied to cryptocurrency exchange Bitfinex, USD Coin is tied to Coinbase, the online cryptocurrency broker that became a Nasdaq-listed company in 2021.
Both stablecoins offer equivalent functionality. If a difference must be found between the two, it is transparency. USD Coin is fully funded by US dollars and its reserves have been publicly audited. Tether has not been audited.
Other stablecoins to consider are: BUSD, TUSD and PAX.