What Is Tether (USDT)?

tether

Updated: March 3, 2022

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    Tether was created in 2014 as the first “stablecoin,” a type of cryptocurrency that’s pegged to a traditional fiat currency. In this case, USDT is backed by the U.S. dollar.

    Tether, like other cryptocurrencies, is based on blockchain technology. But because USDT is backed 1:1 by U.S. dollars — meaning one Tether is worth $1 — Tether is designed to be less volatile than other forms of crypto. As such, USDT can offer a more efficient, less costly way of executing certain crypto transactions.

    As of January 2022, Tether crypto is the third-largest cryptocurrency by market capitalization, worth more than $78 billion. Keep reading to learn more about how Tether works.

    How Does Tether (USDT) Work?

    Tether is the native token of the Tether network. It trades under the USDT symbol. Like other stablecoins, the Tether coin aims to provide a relatively consistent valuation versus the dramatic price changes typically seen in other types of crypto like Bitcoin, Ethereum, Solana, Binance Coin, and so on.

    Tether also supports three other stablecoins: EURT, which is pegged to the euro; CNHT, pegged to the Chinese Yuan; and XAUT, a stablecoin backed by 1 ounce of gold.

    The stability of being pegged to a traditional fiat currency like the dollar allows USDT crypto to be used as a store of value and a more practical means of exchange, instead of a medium for speculation.

    Tether’s 1:1 ratio with the dollar has also enabled it to be used as a bridge between fiat currencies and cryptocurrencies. It has the relative stability of a fiat currency, but functions like a cryptocurrency — which facilitates more efficient, lower-cost crypto trading.

    Tether crypto was launched on the Bitcoin blockchain, but it has since migrated to other platforms, including Ethereum, Tron, EOS, Algorand, and others.

    Recommended: What Is a Stablecoin?

    Advantages and Disadvantages of Tether (USDT)

    Despite being a relatively straightforward form of crypto, Tether has its pros and cons.

    Advantages

    As discussed above, stablecoins like Tether offer investors an alternative to the dramatic price fluctuations of the cryptocurrency markets.

    Also, having USDT — as opposed to actual dollars — facilitates crypto-to-crypto transactions, and thus can reduce costs and delays that impede crypto transactions. In that sense, tether is often considered a bridge between fiat currencies and crypto.

    Crypto exchanges have found that tether crypto can help them increase the number of offered trading pairs, and also support transactions in geographies where cash trading may not be available.

    Disadvantages

    Tether is considered a fiat-collateralized stablecoin, which means that all tethers in circulation are backed by a fiat currency, however, Tether Ltd. does not guarantee that Tethers can be exchanged or redeemed for dollars. In fact, the question of whether Tether is indeed fully backed by U.S. dollars has been legally called into question several times in Tether’s history.

    In October 2021, the Commodity Futures Trading Commission (CFTC) alleged that Tether Ltd. made misleading statements about having sufficient dollars to back all the Tether coins in circulation. Tether agreed to pay a $41 million fine, but asserted that all USDT are backed by the company’s reserves: a combination of cash, commercial paper, other crypto, and similar securities.

    In other words, USDT is redeemable 1:1 for dollars, but it’s not fully backed by legal tender alone.

    Last, as a stablecoin Tether is, well, tethered to the value of the underlying fiat currency. So USDT is generally worth about $1 at all times, but the reality is that the price of Tether can fluctuate a few cents above or below the $1 mark.

    Advantages

    Disadvantages

    • Relatively stable value, backed 1:1 by designated fiat currencies like the dollar and euro.

    • While Tether is backed 1:1 by legal tender, Tether Ltd. does not guarantee all Tethers can be redeemed for dollars.

    • Tether is pegged to fiat but lives on a blockchain, making it faster than fiat for transactions.

    • Tether’s volatility is far less than most crypto but the price does fluctuate.

    • Fewer fees, so trading with Tether is less expensive than other crypto.

    • Not available on all crypto exchanges.

    • Tether can support transactions in areas where cash is hard to obtain.

    Who Created Tether (USDT)?

    In 2012, entrepreneur J.R. Willett developed the concept for a type of crypto that could live on a separate layer of the Bitcoin blockchain. This secondary layer — first called Mastercoin, was the technological precursor for Tether. Brock Pierce, Reeve Collins, and Craig Sellars formed a startup called Realcoin, which launched in July 2014, and became Tether Limited later that year.

    Tether was originally launched using this Omni Layer protocol, a platform used for creating and trading digital assets on top of the Bitcoin blockchain, which also supports the minting and burning of Tether coin. Tether’s ledger is also stored on the Bitcoin blockchain via Omni.

    Tether has since migrated to other blockchains, like Ethereum, where it exists as an ERC-20 coin.

    Why Does Tether (USDT) Have Value?

    In addition to the relative stability of Tether, there is an additional factor for investors to consider. At the moment, Tether is still a primary source of liquidity for the crypto markets.

    According to research by CryptoCompare, BTC to USDT trading volume exceeded BTC to USD trading volume, 61.5% vs. 15.7%, as of November 2021.

    For investors looking for both liquidity and stability, Tether may have some value to offer.

    Price of Tether (USDT)

    The price of a Tether coin does not fluctuate like other crypto. As a stablecoin, Tether tends not to have the same volatility as some stocks and other crypto because it’s meant to be a medium of exchange not speculation. Thus the price of Tether as of January 2022 is about $1.00, which is largely where it always is, though the price does fluctuate somewhat – reaching a low of $0.99 in 2021 and a low of $0.88 in 2018.

    After more volatility over the next several years, XTZ fluctuated in value and hitting a low of $2.15 in July of 2021, before rising to $8.70 in October 2021. XTZ is now hovering at about $3, as of late January 2022.

    Tether Price History

    Why Use Tether (USDT)?

    Tether is useful for crypto investors because it offers a way to avoid the extreme volatility of other cryptocurrencies. Furthermore, having USDT (as opposed to the U.S. dollar) helps reduce transaction costs and delays that may impede trade executions within the crypto market.

    How Can I Buy Tether (USDT)?

    You can buy USDT on many major crypto exchanges, including P2P exchanges. Here’s how.

    Step 1. Open an Account With a Crypto Exchange or App

    Although USDT is available on most exchanges, it’s best to check that the exchange carries the crypto you want to buy. Fund the account with a deposit or wire transfer.

    In some cases, crypto exchanges are not set up to take fiat currencies like the dollar. So even though USDT is a stablecoin pegged to the dollar, you may have to purchase other crypto, like BTC or ETH, in order to buy and sell Tether.

    Step 2. Set Up a Crypto Wallet

    Next you’ll need a crypto wallet for storing and trading different coins. Note that some exchanges come with a crypto wallet, known as a custodial wallet, but there are pros and cons to this option. Some investors opt for a software or hardware wallet (sometimes called hot and cold wallets).

    When setting up a crypto wallet to store your Tether, be sure that the wallet supports USDT.

    Step 3. Trade Tether

    This point may seem straightforward, but Tether crypto can be a little tricky, owing to the fact that it exists on more than one blockchain. For that reason, take care that you’re trading within the same blockchain. If you buy Tether as an ERC-20 token on the Ethereum blockchain, you don’t want to transfer it to the Omni blockchain as your funds could be lost.

    How to Sell Tether (USDT)

    In most cases, you’ll need to exchange your Tether for another form of crypto (e.g. BTC or ETH) before you can sell it for dollars. Here’s how it works.

    Step 1. Decide What to Trade

    If you’re selling USDT for dollars, the steps may be different than if you’re selling for another form of crypto, like ETH. Also, some exchanges may not do a direct trade from USDT to USD — or they may require you to complete a KYC identification.

    Once you’ve decided on which currency or crypto you’re trading your USDT for …

    Step 2. Find the Best Price

    Being that USDT is a stablecoin, its value is relatively even. So whether you’re trading for ETH, BTC, dollars, or another form of currency, it’s likely you won’t see many price differentials, but it pays to check.

    Step 3. Complete Your Trade

    If you’re selling USDT for another type of crypto, you can then transfer that crypto to your wallet. If the next step is to sell the crypto for dollars, you can cash out.

    Step 4. Keep Taxes in Mind

    Remember that selling crypto is similar to any other investment: Your gains are subject to taxes. Be sure to consider the tax implications of selling Tether, and consult a professional as needed.

    Does Tether (USDT) Have Staking?

    No. Staking is a process of buying and holding certain forms of crypto to help validate the transactions on that crypto’s blockchain — and being rewarded with coins.

    Tether stablecoins are issued and redeemed by Tether Ltd. without the use of mining or staking. As a result, Tether cannot be earned as rewards the way some other forms of crypto allow.

    The Takeaway

    Tether (USDT) is the first and oldest stablecoin; it’s a form of crypto that is pegged to the U.S. dollar and provides a bridge between fiat currencies and cryptocurrencies. Because Tether is generally worth $1, and rarely fluctuates, it’s possible to use USDT to buy and sell other forms of crypto more efficiently and with fewer trading costs.

    That said, the company has come under legal scrutiny as recently as October 2021 about whether its reserves cover all existing Tether, and it has been fined for making misleading statements about its claim that all Tethers are backed by U.S. dollars. Nonetheless, Tether Ltd. maintains that its reserves — which include a mix of cash, commercial paper, and other crypto — can indeed cover all 78.2 billion Tether coins in circulation, as of January 2022.

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