Tether (USDT) is one of the most prominent stablecoins in the cryptocurrency market. Designed to maintain a 1:1 value ratio with the US dollar, it operates across multiple blockchain networks. Over recent years, Tether has experienced substantial growth in trading volume and liquidity, making it a fundamental tool for traders and investors.
Like other stablecoins, USDT is especially useful for cryptocurrency trading. It enables traders to avoid the high volatility typically associated with Bitcoin and other crypto assets. Additionally, using stablecoins like USDT eliminates the extra costs and delays involved in converting between cryptocurrencies and fiat currencies.
An Overview of Tether
Tether plays a critical role in the broader cryptocurrency ecosystem. As of late 2020, it was ranked as the fourth-largest cryptocurrency by market capitalization, boasting nearly $20 billion. Only Bitcoin, Ethereum, and XRP were larger. Moreover, Tether frequently leads in daily trading volume, sometimes even surpassing Bitcoin.
But what exactly is Tether, and how can it be useful to you?
Understanding Tether (USDT)
Tether (USDT) is recognized as the world’s first stablecoin—a type of cryptocurrency that mirrors the value of a fiat currency. It was originally launched in 2014 under the name “Realcoin” by Bitcoin investor Brock Pierce, entrepreneur Reeve Collins, and software developer Craig Sellers.
Initially issued on the Bitcoin blockchain via the Omni Layer protocol, USDT has since expanded to other blockchains. Today, the majority of its supply exists on Ethereum as ERC-20 tokens. It is also available on other networks, including TRON, EOS, Algorand, Solana, and the OMG Network.
Tether’s journey has included both successes and controversies, much like other major cryptocurrencies. In its early days, the price of USDT showed some volatility, even reaching $1.20 at one point. However, since early 2019, its stability has improved significantly, likely due to increased trading volume and overall maturation of crypto markets.
How Does Tether (USDT) Work?
The primary utility of stablecoins lies in their relative stability compared to traditional crypto assets. As a stablecoin, Tether’s appeal comes from its “tether” or peg to a fiat currency. It was originally claimed that each USDT in circulation was backed 1:1 by one US dollar held in reserve.
According to Tether’s original whitepaper:
“Every tether in circulation is backed one-to-one (i.e., one tether USDT equals one dollar) by the corresponding unit of fiat currency, held in deposit by Tether Limited, based in Hong Kong.”
Although Tether was initially backed solely by US dollars, its collateral model later evolved to include other cash equivalents, assets, and receivables. Generally, USDT trades at a stable 1:1 exchange rate with the US dollar, though significant market events can occasionally cause minor deviations.
Why Tether (USDT) Matters
Tether serves as a bridge between cryptocurrencies and fiat currencies. It offers investors an easy way to trade at a one-to-one ratio with the US dollar without exposure to the inherent volatility of other digital assets.
This stability allows investors to hold a digital asset similar to fiat currency while easily trading other cryptocurrencies. Key features contribute to Tether’s popularity, though it is not without risks.
Key Features of Tether
- 1:1 ratio with the US dollar
- High stability (as stable as the US dollar)
- Multi-blockchain availability
- Diverse use cases compared to traditional cryptocurrencies
Use Cases for Tether (USDT)
Quick Access to Market Stability
If the price of Bitcoin or other cryptocurrencies is falling rapidly, you can quickly convert your holdings to USDT instead of cashing out to fiat. This helps you preserve value during market downturns.
Easy Fund Transfers Between Exchanges
Tether allows you to move funds between different cryptocurrency exchanges quickly. This is particularly useful for arbitrage trading, where price differences across platforms can be exploited for profit.
Trading on Crypto-Only Exchanges
Some exchanges do not support fiat deposits or withdrawals but do allow trading with USDT. By acquiring Tether first, you can trade on these platforms without worrying about the volatility of holding trading funds in Bitcoin or other cryptos.
Forex-Style Trading
Since USDT is pegged to the US dollar, you can engage in Forex-like trading by exchanging local (non-US) currencies for USDT when their value is high relative to the dollar. You can then withdraw to local currency when the exchange rate is more favorable or invest in other assets.
How to Store Tether (USDT)
Besides holding USDT on exchanges like Binance, you can store it in various cryptocurrency wallets. These include web and mobile wallets (such as Trust Wallet) or hardware cold storage wallets (like Ledger) via third-party software interfaces.
Because USDT is issued on multiple blockchains, you must ensure that you transfer it using the same network. For example, when withdrawing USDT from Binance, you may see several network options: Binance Chain (BEP2), Binance Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI), and Tron (TRC20).
It is crucial to select the correct network. Using the wrong one could result in permanent loss of funds. For instance, sending Omni-based USDT to an ERC-20 address will likely lead to an irreversible loss.
Note that as of late 2020, only ERC-20 USDT was supported by Ledger hardware wallets. This means USDT on the Bitcoin blockchain (via Omni Layer) could not be transferred to Ledger devices at that time.
Other Tether Cryptocurrencies
Besides USDT, Tether Limited also issues other 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
You can check the circulating supply of each coin across various blockchains on Tether’s transparency page.
Conclusion
Stablecoins have introduced significant convenience to cryptocurrency trading by reducing the need for frequent conversions between fiat and crypto. As such, USDT is a useful asset to have on hand for crypto trading.
Although questions have been raised about the validity of Tether’s reserves, its consistently high trading volumes in recent years indicate strong market confidence. Besides USDT, you might also consider other stablecoins like BUSD, USDC, TUSD, or PAX.
For those looking to deepen their understanding or explore practical tools, you can explore more strategies for managing digital assets effectively.
Frequently Asked Questions
What is Tether (USDT)?
Tether (USDT) is a stablecoin designed to maintain a 1:1 value with the US dollar. It is widely used for trading and transferring value in the cryptocurrency ecosystem without exposure to price volatility.
How is Tether different from other cryptocurrencies?
Unlike Bitcoin or Ethereum, which can be highly volatile, Tether aims for price stability by being pegged to a fiat currency. This makes it similar to digital cash but operable on blockchain networks.
Is Tether safe to use?
While Tether is popular and widely used, it has faced scrutiny over its reserve backing. Users should stay informed about audits and regulatory developments. It is generally considered safe for short-term trading and transfers.
Can I use Tether on any blockchain?
Tether exists on multiple blockchains, including Ethereum, TRON, and others. However, you must always use the same network for sending and receiving to avoid losing funds.
What are the alternatives to Tether?
Other major stablecoins include USD Coin (USDC), Binance USD (BUSD), TrueUSD (TUSD), and Paxos Standard (PAX). Each has its own backing model and features.
Why would I use Tether instead of fiat?
Tether allows for faster, cheaper transfers between exchanges and enables trading on platforms that don’t support traditional fiat currencies. It also provides a stable store of value during crypto market fluctuations.
For advanced methods on integrating stablecoins into your portfolio, get advanced methods from reliable resources.