Tether (USDT) is a type of cryptocurrency known as a stablecoin. It was introduced by the cryptocurrency exchange Bitfinex. Each Tether token is pegged to the US dollar at a 1:1 ratio, making it a digital equivalent of cash.
The value of Tether remains stable because its reserves are backed by an equivalent amount of US dollars. These dollar reserves must match the number of Tether tokens in circulation to maintain stability and reduce volatility.
Tether’s native token is publicly traded as USDT and is available on most local and international exchanges. USDT tokens are tied to the US dollar, which is a type of fiat currency.
With a market capitalization exceeding $80 billion, Tether is the third-largest cryptocurrency in the world.
Tether was developed by Bitfinex in 2016. Its creators recognized the need for stability in the cryptocurrency market. Tether serves as a bridge between fiat currencies and cryptocurrencies in a transparent way. In simple terms, Tether tokens act as digital cash equivalents, making them attractive to individuals looking to avoid significant market fluctuations. Those seeking security and minimal volatility often choose to buy Tether.
Tether is also a popular option for money transfers due to its price stability and low transaction fees. Sending Tether via the TRON network, for example, takes only a few minutes and costs around $1.
It is important to note that Tether Ltd. does not guarantee that USDT can be exchanged for US dollars.
What Is USDT Used For?
Tether is often traded with Bitcoin and other cryptocurrencies because of its stability. When you sell Bitcoin or another cryptocurrency for Tether, the amount you receive in USDT does not fluctuate in value. In contrast, a volatile cryptocurrency could lose significant value overnight.
Tether tokens offer a convenient way to trade cryptocurrencies. Instead of depositing cash each time—which can be costly and time-consuming—traders use USDT for liquidity. Tether simplifies the process, allowing users to trade cryptocurrencies at any time without repeated cash deposits.
Another common use for USST is money transfers. It enables users to send money quickly without the risk of value loss by the time it reaches the recipient, thanks to its stable value. This is one of the most popular applications of USDT.
The stability of Tether makes it extremely convenient for both money transfers and trading in the crypto market. Cryptocurrency markets can be highly volatile, and traders often seek stability during uncertain market conditions. This is when many opt for Tether USDT. If market conditions appear risky, crypto investors often exchange their cryptocurrencies for USDT to protect their assets from depreciation.
Every investor aims to maximize profits and minimize the risk of loss. Trading in USDT during volatile periods can help avoid significant losses or impermanent loss.
The entire concept of stablecoins was created to give investors more accessibility and control in the cryptocurrency market. By trading cryptocurrencies for USDT, individuals can lock in profits from their trades.
Once someone holds USDT, it is relatively straightforward to cash out (i.e., exchange USDT for US dollars deposited into a bank account) or wait until they are comfortable with market conditions and ready to buy assets like Bitcoin or other cryptocurrencies.
It is common for investors to hold a large portion of their portfolio in USDT during a bear market (a market decline of 20% or more) for two main reasons: to avoid a sharp drop in volatile assets and to be ready to buy cryptocurrencies at lower prices.
Most investors choose to keep a portion of their portfolio in USDT to take advantage of buying opportunities when they arise.
Where Can You Buy USDT?
Now that you understand the uses of USDT tokens, let’s explore where you can buy them. Individuals can use fiat currencies to purchase Tether tokens on a cryptocurrency exchange.
You can buy, sell, transfer, and store USDT safely on various major cryptocurrency trading platforms.
After using a fiat currency to purchase Tether tokens, the tokens will appear in your digital USDT wallet (which is stored on and accessible through the cryptocurrency exchange). Individuals can use their debit or credit cards to buy USDT on an exchange of their choice.
Although Tether is pegged to the US dollar, exchanges still charge fees and may apply different exchange rates.
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How Long Has USDT Been Around?
Tether USDT has been in existence since 2014. It was initially named RealCoin before being rebranded to Tether in 2016. Over the years, Tether has expanded to support other traditional fiat currencies, including the euro (EUR₮), the Chinese yuan (CNH₮), and gold (XAU₮).
The first USDT transactions began in 2015, and trading volume has grown rapidly since. Tether’s daily transactions peaked at over 1 million transactions in a single day on May 10, 2021.
Why Has USDT Been Controversial?
There has been significant controversy surrounding USDT. Let’s look at three major issues:
- U.S. Department of Justice Investigation – In mid-July 2021, the Department of Justice launched an investigation into Tether regarding suspected bank fraud. The allegations were that Tether officials did not inform banks that transactions were linked to cryptocurrency.
- Accusations of Inflating the 2017 Bull Run – Tether failed to conduct an audit in 2018 to prove that its digital assets were backed by fiat currencies. This led to speculation, and the company was accused of artificially inflating the massive 2017 bull run.
- New York Attorney General Investigation – Bitfinex and Tether were investigated for not informing their clients and the market that certain USDT tokens were allegedly not backed by the US dollar. The dispute was later resolved, but it caused significant controversy. Tether eventually produced an audit showing that the tokens were backed by real assets.
How Many USDT Tokens Are There?
There are currently over 80 billion Tether tokens in circulation.
The number of Tether tokens has increased significantly in recent years. As more fiat currency is used to buy USDT, the amount of USDT in circulation rises.
In theory, the ratio should always be 1:1. To maintain balance between cash reserves and USDT tokens, new tokens are minted as needed.
Although Tether’s price should never be worth more or less than the price of the dollar, this has not always been the case. In 2020, Tether’s price briefly reached $1.06**, and in 2018, following negative news, it fell to **$0.90 for a short time.
Can You Mine USDT?
It is not possible to mine USDT. The most common way to acquire USDT is by purchasing it on an exchange.
The main reason Tether cannot be mined is that it would undermine the integrity of this asset-backed stablecoin.
Only the company behind Tether can mint (create) new USDT.
What Is the Market Cap of USDT?
The market capitalization of USDT is currently over $80 billion.
USDT Market Cap = Total number of coins in circulation × $1
Example: 80,570,000,000 × $1 = $80.57 billion
The market cap of USDT has grown in recent years as more Tether tokens are minted and put into circulation.
Main Competitors of USDT
Tether’s success works both for and against it. It has gained immense popularity, with over 50% of Bitcoin trades involving USDT.
However, its success has also inspired the creation of other stablecoins. The development of digital currencies has been a prolific advancement, but the emergence of stablecoins has helped increase the adoption of cryptocurrencies. They are considered safer and less risky.
The concept of a traditional currency-pegged stablecoin has been adopted by many companies, leading to the creation of USD Coin (USDC), Binance USD (BUSD), and others. The stablecoins mentioned above are among the most traded. TerraUSD (UST) is a notable example of what can happen when a stablecoin loses its peg.
What Are the Future Plans for USDT?
The future of any digital currency is expected to involve exponential growth, and Tether is no exception.
It has become very popular for money transfers due to its price stability. Tether continues to integrate with other blockchains, making it available for transfer across different networks—for example, USDT can be sent over the Bitcoin network via the Omni Layer protocol.
Tether’s commitment to undergoing audits indicates the company’s intention to make Tether as transparent as possible. Tether is currently the most widely used stablecoin in the world and reached a peak daily trading volume of $279 billion on May 19, 2021.
Crypto investors continue to include Tether in their crypto asset portfolios for stability and convenience. When cryptocurrency markets are volatile, many crypto traders choose to hold a large percentage of their portfolio in Tether.
Advantages and Disadvantages of USDT:
Tether differs from volatile cryptocurrencies because it is a stablecoin. Let’s examine the pros and cons of Tether.
Pros:
- Stable Price – Tether is pegged to the dollar and does not appreciate or depreciate in value like other volatile cryptocurrencies.
- Fast Money Transfer Method – Tether transactions take only a few minutes, making it a popular choice for money transfers. It also maintains a stable price, meaning there’s no risk of depreciation by the time it reaches the recipient.
- Available on Most Crypto Exchanges – USDT is one of the most popular cryptocurrencies available today. It is easily accessible on nearly all exchanges, making it easy for anyone to buy.
- Backed by Fiat Currency – Tether’s price remains stable because it is backed by real assets. This maintains the price and integrity of Tether.
- Protects Against Market Volatility – When market conditions are extremely volatile, Tether acts as a safe haven for traders, allowing them to trade in Tether and not be affected by market downturns.
Cons:
- USDT Cannot Be Mined – Tether cannot be mined, and the only way to buy USDT is directly through Tether Limited or cryptocurrency exchanges that support Tether.
- Not Profitable for Long-Term Investment Alone – Because Tether is a stablecoin, it does not offer the same returns as volatile cryptocurrencies. However, individuals can lend Tether to earn yields. This is risky and requires due diligence.
- Surrounded by Controversy – Tether USDT has been the subject of multiple investigations and has been surrounded by allegations of bank fraud. In the past, there have also been doubts about whether Tether USDT is backed by real assets. Many of these allegations have been withdrawn, and lawsuits have been resolved, but not without damaging Tether’s reputation.
- Lacks Anonymity – Individuals who wish to acquire Tether must usually make a bank deposit, which exposes their identities and puts sensitive information in the hands of companies. It is possible to acquire Tether without providing identification, as many exchanges do not require proof of ID to open an account. Individuals can also choose to use a peer-to-peer network (P2P) to buy Tether.
Frequently Asked Questions
What makes Tether (USDT) a stablecoin?
Tether is considered a stablecoin because its value is pegged to the US dollar at a 1:1 ratio. This means each USDT token is backed by an equivalent amount of US dollars held in reserve, ensuring price stability and minimizing volatility commonly associated with other cryptocurrencies.
Is it safe to use USDT for money transfers?
Yes, USDT is widely used for money transfers due to its fast transaction times and stable value. Transfers typically take only a few minutes, and the value remains consistent, reducing the risk of depreciation during the transfer process. However, users should always choose reputable platforms for transactions.
Can I earn interest on my USDT holdings?
Yes, some platforms allow you to lend your USDT to earn interest or yield. This process often involves depositing USDT into a savings or lending account on a cryptocurrency exchange or DeFi platform. It is important to research and understand the risks involved before participating.
How is Tether different from other stablecoins like USDC?
Tether (USDT) and USD Coin (USDC) are both fiat-backed stablecoins pegged to the US dollar. The main differences lie in their issuers, level of transparency, and reserve audits. USDC is known for its regular attestations and compliance, while USDT has faced more public scrutiny regarding its reserves.
What networks support USDT transfers?
USDT is supported on multiple blockchain networks, including Ethereum (as an ERC-20 token), TRON (as a TRC-20 token), Bitcoin Omni Layer, and others. This multi-chain support allows users to transfer USDT across different networks, though transaction fees and speeds may vary.
Why has Tether been controversial?
Tether has faced controversy regarding the adequacy of its dollar reserves, allegations of market manipulation, and legal challenges from regulators. While some issues have been resolved through settlements and audits, these events have contributed to ongoing debate about its transparency and reliability.