Tether (USDT) is a popular stablecoin that has been used by crypto enthusiasts for years to leverage cryptocurrency trading.
USDT is pegged to the US dollar and, in theory, should be immune to market volatility that can dramatically affect the valuation of other cryptocurrencies such as Bitcoin.
Tether is a stablecoin
Tether aims to provide a “safe” digital asset that maintains a stable valuation. That is what makes USDC a stablecoin, whose value is pegged to the price of the US dollar. The goal is for the tether to always maintain the same value as the peg.
Steve Bumbera, Chief Operating Officer of Many Worlds Token, said, “The idea is that one Tether can always trade for $1 regardless of market conditions.
Tether’s stablecoin competitors include USD Coin (USDC), Dai (DAI) and Pax Dollar (USDP).
Cryptocurrency traders use Tether to provide stable and reliable liquidity, allowing them to enter and exit other cryptocurrency transactions without facing unpredictable losses (or gains) due to volatile price fluctuations.
At the time of this writing, Tether had a 24-hour trading volume of $58 billion (£47 billion). This makes Tether the most liquid cryptocurrency, even surpassing crypto market heavyweights Bitcoin (BTC) and Ethereum (ETH). Also, he is one of the top 3 cryptocurrencies by market capitalization.
How does Tether work?
When a user deposits fiat into Tether’s reserves, sells fiat and buys USDT, Tether will issue the corresponding digital amount in tokens. You can then send, store, or exchange your USDT.
When a user deposits $100 (£80) into the Tether Reserve, they will receive 100 Tether tokens, subject to 1:1 dollar parity. Tethercoins are destroyed and removed from circulation when users redeem their tokens for fiat currency.
Tether, like many other digital currencies, travels across blockchains. There are Tether tokens available on various blockchains such as Ethereum (ETH) and TRON (TRX), as well as Bitcoin platforms Omni and Liquid.
A Brief History of Tether
Tether’s roots go back ten years, when JR Willet was trying to build a new cryptocurrency on the Bitcoin protocol. Willet implemented this idea with his Mastercoin and one of the original members of his team in 2014 he became the co-founder of Tether.
When Tether was added to the BitFinex exchange in January 2015, we started using Tether for liquidity.
How is Tether backed?
Despite stablecoins being a popular choice among crypto traders, Tether has liquidity issues and whether its reserves are sufficient to cover the number of USDT tokens in circulation. There is some additional controversy about
According to Tether’s website in 2019, the site claimed that the stablecoin was backed by a reserve of conventional currency and cash equivalents (and sometimes other assets from related parties).
This is a little more detailed than what is quoted today. Currently, Tether’s site states that “All Tether tokens are pegged 1:1 with their corresponding fiat currency and are 100% backed by Tether’s reserves.”
Adam Carlton, CEO of cryptocurrency wallet Pink Panda, says Tether’s history of being transparent about how its coins are backed has not always been clear or consistent. increase.
“It has a very dubious legal past and to this day its actual reserves remain highly opaque and are believed to consist of commercial papers of substantially unknown origin,” Carlton said. says.
Other crypto pundits say there is some acceptance that Tether is not “fully” collateralized in the crypto market. And it became the subject of controversy over a year ago.
James Putra, Vice President of Product Strategy at TradeStation Crypto, said:
Tether vs. TerraUSD
Tether and TerraUSD (UST) are both USD-pegged stablecoins, but the two cryptos maintain their value in very different ways.
Tether is a collateralized stablecoin backed by company assets and reserves. Tether is said to be “fully reserved” when these reserves are equal to or less than the number of tokens in circulation. You can check your current balance in Tether on our Transparency page.
Terra is an algorithmic stablecoin. Instead of bank account cash reserves, Terra relies on programming languages and parameters set on different tokens in the Terra protocol to support 1:1 US dollar parity.
Based on its creation, the TerraUSD stablecoin relies on supply and demand market forces and the ability of LUNA to absorb price volatility and maintain its price peg.
Relying on algorithms rather than cash reserves is what caused TerraUSD to lose its price peg amid market volatility. “When you own 1 UST, you expect him to be able to cash out for $1 at any time, but he lost the peg,” says Bamberra.
This reveals concerns about the future of such algorithmic stablecoins.
Binance, the world’s largest cryptocurrency exchange by trading volume, temporarily suspended spot trading of LUNA and UST against its stablecoin BUSD on May 13th.
“The current version of programmatic coins is definitely dead,” Gupta said. “But there is always room for innovation in much better stablecoins.”
Tether’s price fell below the peg to $0.9485 on market moves related to the TerraUSD crash on May 12, but has since recovered to near 1:1 dollar parity.
Tether vs Bitcoin
The main difference between Tether and Bitcoin is that “Tether is a stablecoin and is tied to a real commodity, the U.S. dollar, whereas Bitcoin is not tied to a real commodity,” Hill said. said Daniel Rodriguez, Chief Operating Officer of Wealth Strategies. , an asset management company located in Richmond, Virginia.
Tether is a centralized crypto, while Bitcoin is decentralized as it is not linked to any real-world currency. So, in theory, the value of Tether should be more stable than Bitcoin.
Cryptocurrencies that are not pegged to real-world assets or currencies are subject to market volatility. Most traditional cryptocurrencies such as Ethereum, Bitcoin and Litecoin (LTC) experience extreme fluctuations and volatility due to markets, inflation and interest rates.
“Tether seems to be a little more stable as it remains close to the value of the US dollar, giving or receiving a few cents,” Rodriguez said.
Another difference is that “Tether was not necessarily designed to make money, but as a stable store of value,” he adds.
Is Tether a Good Investment?
Stablecoins like Tether don’t make much sense as investments because they are not meant to add value. USDT is always equivalent to $1, so it only serves as a store of value.
Besides being a useful store of value, the advantage of Tether is that it is a tool for doing business in a much easier way than with Bitcoin.
“It would be very difficult to create a pricing scheme for an enterprise based solely on BTC, because one bitcoin today is not the same as the price of a bitcoin tomorrow,” Bamberra said.
One good reason to own a stablecoin like USDT is if you want to keep your money in crypto but avoid volatility, Bamberra said. However, Terra is not a safe investment even if you bet on USD.
“The risk is that Tether will lose its value or the staking platform of choice will not be legal,” says Bamberra.
The company claims that it has “never ignored a redemption request from a verified customer,” but does not guarantee anything about investments or cryptocurrencies.
Cryptocurrency users should also be aware of the changing regulatory environment regarding digital assets.
“The future of Tether and other stablecoins rests on transparency and adequacy of collateral and liquidity,” said Lopresti. “These features will undoubtedly be the focus of regulators powering this sector of the digital asset economy with the TerraUSD collapse.”