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All about USTD

Updated on :  

08 min read.

The cryptocurrency space features thousands of players, each of them having different functions. Also, each one of these aspires to go mainstream and become the next major player in the space like Bitcoin, Ethereum, etc. These are big names in the space, and investors always have their eyes set on them. 

However, besides these, there is one particular crypto which seems to interest several enthusiasts of this space. It’s Tether. And the reason which majorly interests enthusiasts regarding this crypto asset is its class – Tether is a “stablecoin”.

Let’s take a closer look at it.

What are stablecoins?

A stablecoin is crypto pegged to a real-world currency, referred to as fiat currency like Euro, the US dollar, etc. In simpler terms, a stablecoin is seen as crypto engineered to offer a stable price point every time.

Centralised companies issue stablecoins. Stablecoins enable exchanges to generate fiat currency pairs without accepting fiat. This implies you can have a BTC/USDT trading pair that simulates the BTC/USD market without the requirement for regulation.

What is Tether (USDT)?

Tether is a stablecoin which is pegged to fiat currencies. The US Dollar (USDT) is the most popular currency that Tether uses. Also, EURt is a Euro-pegged stablecoin that Tether supports.

This blockchain-enabled platform was launched in 2014 and is engineered to aid the application of fiat currencies digitally. A more modern approach toward money aims to disrupt the conventional financial system.

As of May 2022, Tether is the third-biggest crypto after Bitcoin and Ethereum. With a market capitalisation of roughly $83 billion, it is also the largest stablecoin.

Tether tokens (USD₮) are backed 100% by Tether’s reserves and are pegged at 1-to-1 with a matching fiat currency.

Working of Tether (USDT)

When any user deposits fiat currency into Tether’s reserve or sells fiat to purchase USDT, Tether issues tokens of the corresponding digital amount. Then USDT can be stored, sent or exchanged.

On depositing $100 in Tether reserve, concerned users receive 100 Tether tokens with a 1-to-1 dollar parity. On the other hand, when users redeem the tokens for fiat currency, the Tether coins get destroyed and removed.

Tether tokens are available on several blockchains, and Tether moves across blockchains similar to several other digital currencies.

USDT vs BTC


Bitcoin

Tether

A decentralised crypto and is not linked to any real-world currency

A centralised cryptocurrency

BTC is not attached to any real-world commodity.

Tether is a stablecoin that is attached to a real-life commodity.

BTC has a limit of 21 million.

USDT is limited to the production considered by Tether Limited.

Bitcoin is minable.

Tether is not minable.

Bitcoin is volatile and sees extreme fluctuations.

Theoretically, the value of Tether must stay more stable than that of BTC. It stays near to the value of one USD.

Tether: Use cases

  • International payments
  • Holding Dollar based value overseas
  • Participate in De-Fi networks
  • Digital only exchanges through which investors and traders can sell their position into a stable asset
  • Settlement finality in minutes
  • Trading

Tether: Advantages

  • Transaction fees

Tether does not charge any fee for transactions between Tether wallets. However, standard blockchain network fees are applicable.

  • Price stability

Traditional cryptos see extreme price fluctuations. These are not pegged to a real-world currency or asset. On the other hand, Tether is centralised crypto pegged to fiat currencies. Hence, its value should stay more stable theoretically.

  • Transaction times

It takes minutes for Tether transactions to complete. This is significant for crypto traders who often need to shift funds rapidly and take advantage of arbitrage opportunities.

Tether (USDT): Challenges

  • Unclear regulatory status and banking relations

Tether Limited has shifted from a particular regulatory jurisdiction and banking partner to another throughout its existence. This has resulted in concerns regarding the legal standing and legitimacy of the project.

  • Lack of audits and transparency

Tether’s auditing practices and minting process operate with little transparency in a “black box”.

  • No assurance that users can redeem all Tethers for dollars

Tether is backed 1:1 by legal tender. But Tether Limited does not assure that users can redeem all Tethers for dollars.

Controversy

After an inquiry spanning 22 months, the New York Attorney General arrived at a settlement in February with iFinex, the parent organisation of crypto exchange Bitfinex and Tether. Investigators accused the organisations of hiding losses in an unlawful manner. Attorney General Letitia James stated that the claims of Tether that its virtual currency always had full backing by U.S. dollars were a lie.

iFinex had to pay a fine amounting to $18.5 million. Also, it is no longer allowed to carry out operations in New York.

Is Tether safe?

Despite all issues, it’s worth noting that Tether’s price usually remains steady at $1, unlike other cryptocurrencies. This implies that an investment in Tether is not the same as investing in any traditional crypto. However, crypto enthusiasts must note that there were periods when the price showed fluctuations from $1. In 2020, Tether’s price briefly shot up to $1.06. Its price also plunged to $0.90 for a brief period in 2018.

How to buy Tether (USDT)?

Follow these steps if you want to buy Tether (USDT):

Step 1: Choose a cryptocurrency exchange.

Step 2: Buy Tether by initiating a “buy” transaction using the ticker symbol of Tether – USDT and the amount you are willing to buy

After buying Tether, store it in a crypto wallet.

Tether is still one of the market’s most popular stablecoins. It offers liquidity for transactions worth millions of dollars in value every day. Despite the controversy, many consider as a haven in this immensely volatile space. Also, numerous users who want DeFi between countries, regions, or continents continue using Tether.

Frequently Asked Questions

Q1. Is the Tether platform transparent?

Ans. Yes, the Tether platform is transparent, and every Tether token is backed 100% by Tether’s reserves.

Q2. Which commodities and currencies do Tether support?a

Ans. Tether supports U.S. dollars (USD₮), Mexican peso (MXN₮), euros (EUR₮), Gold (XAU₮) and offshore Chinese yuan (CNH₮).