What Is Tether (USDT)?
Tether is a blockchain-based cryptocurrency whose cryptocoins in circulation are backed by an equivalent amount of traditional fiat currencies, like the dollar, the euro, or the Japanese yen, which are held in a designated bank account. Tether tokens, the native tokens of the Tether network, trade under the USDT symbol.
Understanding Tether (USDT)
Tether belongs to a breed of cryptocurrencies called stablecoins which aim to keep cryptocurrency valuations stable, as opposed to the wide swings observed in the prices of other popular cryptocurrencies like Bitcoin and Ethereum. That would allow it to be used as a medium of exchange and a mode of storage of value, instead of being used as a medium of speculative investments.
Tether specifically belongs to the category of fiat-collateralized stablecoins. This means that a fiat currency like the US dollar, the euro, or the yen, backs each cryptocoin in circulation. Other stablecoin categories include crypto-collateralized stablecoins, which use cryptocurrency reserves as collateral, or non-collateralized stablecoins. Non-collateralized stablecoins don’t have any collateral but operate in a way similar to that of a reserve bank to maintain the necessary supply of tokens, depending on the economic situation.
Tether was specifically designed to build the necessary bridge between fiat currencies and cryptocurrencies and offer stability, transparency, and minimal transaction charges to users. It is pegged against the U.S. dollar and maintains a 1-to-1 ratio with the U.S. dollar in terms of value. However, there is no guarantee provided by Tether Ltd. for any right of redemption or exchange of Tethers for real money – that is, Tethers cannot be exchanged for U.S. dollars.
According to a study by CryptoCompare, a global cryptocurrency market data provider, bitcoin to Tether trading still represents the majority of BTC traded into fiat or stablecoin. In February 2021, 57% of all bitcoin trading was done in USDT. Tether remains a major source of liquidity for the cryptocurrency market.
Tether was launched as RealCoin in July 2014 and was rebranded as Tether in November by Tether Ltd., the company that is responsible for maintaining the reserve amounts of fiat currency. It started trading in February 2015.
What Is the Point of the Tether Token?
Tether (USDT) offers a way for investors to avoid the extreme volatility of other cryptocurrencies. By moving value to USDT, a trader might reduce their risk of exposure to a sudden drop in the price of cryptocurrencies. It is also much quicker and cheaper to transfer BTC into Tether rather than the U.S. dollar.
Is Tether a Stablecoin?
Yes, Tether is the first and most well-known stablecoin in the crypto world. Other stablecoins include True USD (TUSD), Pazos Standard (PAX), and USD Coin (USD).
How Does Tether Stay at $1?
While Tether has dropped below $1 before, the stablecoin is able to retain its value because it is pegged to a matching fiat currency and 100% backed by Tether's reserves.