tether (CRYPTO:USDT) is a USD pegged stablecoin. In other words, 1 USDT is designed to be worth 1 dollar, and although it has had price fluctuations in the past, it usually does.
Stablecoins are useful for those who want to maintain a consistent value and hold an asset-backed digital currency. Tether is very popular in this regard, but it is also arguably the most controversial stablecoin. This guide will tell you everything you need to know about Tether.
What makes Tether unique?
There are many stablecoins out there, and quite a few of them are pegged to the US dollar. While offering practically the same as these competitors, the popularity of Tether (and his one of its main competitors) us dollar coin (CRYPTO:USDC)) makes it stand out.
Tether’s market capitalization is larger than any other stablecoin. More importantly, the daily trading volume is much higher. In fact, Tether always has the highest 24-hour trading volume among all cryptocurrencies, thus playing a major role in the digital token ecosystem.
The advantage of stablecoins over other types of cryptocurrencies is that they maintain a predictable price range under normal circumstances. It is used differently than cryptocurrencies that people buy as an investment because it has no volatility. The most popular ways to use stablecoins like Tether are:
- Send money digitally to another party anywhere in the world.
- Transfer your funds between crypto exchanges.
- Lend your stablecoin to get high interest rates (some lending platforms pay 10% or more).
- Store your funds on an exchange so that you can quickly exchange them for other cryptocurrencies.
Tether’s popularity and high trading volume make it easier to use than other stablecoins. For example, if you want to buy, sell, or trade Tether, it is available in most major cryptocurrency apps. And the trading volume means there are no issues with using Tether.
USDT is Tether’s largest crypto token, but there are also tokens pegged to the Euro, Yuan, and Gold.
where did the tether come from
Brock Pierce, Reeve Collins and Craig Sellars founded Tether in 2014. The project was originally called Realcoin, but shortly after its launch he changed the name to Tether. Tether Limited, the company behind Tether, is responsible for issuing it and managing its reserves.
Bitfinex is the first major cryptocurrency exchange to offer Tether trading, launched in January 2015. In 2018, spokespeople for both companies said they shared the same CEO.
How the tether works
Tether is a cryptographic token issued on several major blockchains. Tether’s goal is to allow 1 USDT to be exchanged for $1. To achieve that, Tether Limited maintains a reserve backing the tokens it issues.
A reserve of $1,000 is required for Tether Limited to issue 1,000 USDT. This is how a tether works in theory, but in practice it’s a little more complicated. There have been issues with the reliability of Tether Limited’s reserves. The company initially claimed that all USDT was backed 1:1 at $1. It turned out to be an error.
Attorneys for Tether Limited said 74% of USDT tokens were backed by cash or cash equivalents in 2019. However, when Tether Limited provided a breakdown of its reserves in 2021, only his 2.9% of USDT tokens were cash-backed. The remaining reserves consisted of secured loans, bonds and commercial paper.
In summary, Tether Limited claims that all USDT is 100% backed by company reserves. These reserves are a combination of assets, so they are not all cash. Also note that there is no legal guarantee that USDT tokens can be redeemed for $1.
Over the years, Tether has established various connections and partnerships.
Its most notable connection is with cryptocurrency exchange Bitfinex. The same person manages the exchange and Tether.
Tether has been integrated into multiple blockchains and is now widely available. Blockchains that currently support Tether are:
One of Tether’s most interesting recent partnerships is with the city of Lugano, Switzerland. In March 2022, Tether Limited signed a partnership agreement with Lugano to use blockchain technology in local communities. This will allow city businesses and citizens to pay their taxes with Tether.
Can I earn passive income with Tether?
You can earn passive income with Tether through our crypto lending program. One option is to deposit Tether using decentralized lending protocols such as: Ghost (CRYPTO:AAVE) or compound (Crypto: COMP). These decentralized finance (DeFi) platforms allow you to lend cryptocurrencies without signing up for an account.
Some cryptocurrency exchanges have their own lending programs. Exchanges where you can lend Tether and earn interest include Celsius and KuCoin. Please note that US residents are prohibited from using KuCoin.
The biggest problem with Tether is the questionable business practices behind it. As mentioned above, Tether Limited has misrepresented its reserves in the past. For several years, we have been reluctant to share detailed information about these reserves.
Tether Limited has also faced legal troubles due to its relationship with Bitfinex. In 2019, the New York Attorney General sued two of his companies. In 2018, he claimed that when he lost $850 million of Bitfinex’s funds, he used $700 million from Tether’s reserves to make up for the loss. The company has not admitted wrongdoing, but the owner said he paid a fine of $18.5 million in 2021.
To be fair, Tether has aimed to be more transparent. We now publish regular reports on our reserves and post information about them on our website. However, some people still do not trust because of their past mistakes.
Is Tether a Good Investment?
Tether is not strictly an investment as it is designed to maintain a $1 price. It will not go up in value like other cryptocurrencies or cryptocurrency stocks.
As mentioned earlier, Tether can be used to generate passive income. There are many lending platforms available that pay competitive interest rates on Tether.
Please note that this is not without risk. Your Tether is not insured or guaranteed like money in your bank account. Tether generally remains valued at $1, but that could change in the future.
How to buy Tether
To buy Tether, sign up for an account on a cryptocurrency exchange that offers Tether. As it is one of the largest cryptocurrencies, there are several good places to buy Tether.
After registration, deposit money into your account. On most exchanges, the cheapest way to deposit money and buy cryptocurrencies is to transfer money to your bank account. From there, you can make purchases.
When people think of stablecoins, Tether is one of the first names that come to mind. Despite its problems, it is a very popular choice for lending and trading cryptocurrencies.
Lyle Daly has positions in Bitcoin, Ethereum, Solana, Tether, and USD Coin. The Motley Fool has positions in and recommends Arb, Bitcoin, Compound, Ethereum and Solana. The Motley Fool’s U.S. headquarters has a disclosure policy.