We are talking about the main alternative to the dollar for the cryptocurrency sector and the most popular of the “stable coins”
Stablecoins are cryptocurrency tokens whose rate is tied to an asset, such as the dollar, euro or ounce of gold.. The largest and most popular of them is Tether USD (USDT), which is issued by Tether Limited.. Stablecoins are primarily used by traders to move digital assets between exchanges, but are also gradually finding their way into consumer payments.. Unlike cryptocurrencies such as Bitcoin or Ethereum, their rate is not subject to fluctuations, regardless of market conditions.
The Tether Limited company issues several stablecoins pegged to the exchange rate of real assets — to the dollar (USDT), to the euro (EURT), to the yuan (CNHT), to the peso (MXNT) and to an ounce of gold (XAUT). As a rule, when people say “Tether stablecoin,” they mean USDT.
As of January 2024, USDT is the third largest crypto asset (after Bitcoin and Ethereum) and the number one stablecoin with a market capitalization of approximately $95 billion. Other popular stablecoins include USD Coin (USDC) and Dai (DAI), which have capitalizations of $25 billion and $5 billion, respectively.
Crypto traders use stablecoins as an alternative to the dollar in transactions on exchanges, and also as a means of protecting deposits from losses due to price volatility. This makes USDT and other stablecoins an important tool for managing risk and creating investment strategies for those dealing in cryptocurrencies. In addition, stablecoins are used in other areas, from cross-border payments to payment for services and digital goods.
How does Tether work?
The Tether stablecoin is pegged to the dollar exchange rate due to Tether Limited having its own collateral system. It implies that every USDT token in circulation has an equivalent or greater value in its reserves. These reserves are a mixture of liquid assets, including both cash and short-term bonds and time deposits.
Tether regularly publishes reports on the Tether website detailing the total number of USDT tokens in circulation and the reserves the company holds to ensure transparency and build trust among users.. This practice is important for the company given the attention from regulators, primarily American ones.
Buying, selling and exchanging Tether stablecoins is available on most cryptocurrency exchanges, p2p platforms or exchange services. When an average user buys USDT on an exchange or exchange, the amount of USDT in circulation does not change. However, if a large organization wants to convert a large amount of money directly into USDT, they will contact the company directly and transfer the money to their account in exchange for the newly issued tokens. The transparency of the blockchain and the tracking of public Tether addresses allow analytics services to see when and how many newly minted USDT are entering the market.
Unlike many cryptocurrencies, Tether does not operate on its own blockchain. Instead, the company uses the infrastructure of other existing blockchains to host tokens.. This approach allows Tether to benefit from the security, speed and capabilities of third-party platforms.
USDT tokens are currently available on several blockchains, including Ethereum, Tron, Solana or Polygon. Each blockchain offers unique transaction speeds, costs, and ecosystem benefits, providing users with different options for transacting USDT. USDT tokens of the TRC-20 standard operating on the Tron network are the most popular among users due to their high speed and low cost of transfers.
Tether's history of transparency regarding USDT backing has not always been clear or consistent. For some time, the exact structure of Tether reserves was virtually unknown, which caused distrust in the stablecoin. Skeptics have questioned the company's claim that «all tokens are 100% backed by Tether reserves,» arguing that its regular reports are not the result of a full audit.. Western business media at different times released several investigations that spoke about the opaque management and financial structure within the company.
The US Commodity Futures Trading Commission (CFTC) and New York prosecutors investigated the activities of Tether Limited and imposed multimillion-dollar fines on it for non-transparent data on the company's reserves and management.. At the end of 2023, the company's management publicly announced its readiness to interact with US regulators on any issues.
Tether will cooperate with the USA. What does this mean for USDT holders?
Against the background of the general collapse of the crypto market in May and November 2022, USDT briefly lost its peg to the dollar exchange rate, but quickly restored it. Stablecoins from other issuers have faced a similar problem in different circumstances in one way or another.. For example, the USDC rate in the spring of 2023 fell to $97 for several days due to problems with the bank accounts of the company issuing it.
Despite this, Tether is still widely used and maintains its position as the leading stablecoin.. The cryptocurrency community continues to rely on it for its stability and liquidity.
How is Tether used?
Trading and investing. USDT is a favorite tool for traders who want to quickly and efficiently deposit funds into exchanges. It effectively serves as an alternative to the dollar, but does not have regional or bank restrictions.. Its stable rate ensures the safety of the deposit during periods of high volatility, allowing traders to store funds without leaving the cryptocurrency market.
Money transfers. Tether allows you to send money around the world quickly and often with lower fees than traditional bank transfers. The recipient can convert USDT into local currency or use it directly.
Earning interest. Some crypto platforms and wallets offer deposit accounts for stablecoins. They can receive income on their funds, foreigners at rates higher than in banks, while maintaining the liquidity and stability of USDT.
Payment for goods and services. An increasing number of merchants accept cryptocurrencies, including Tether, as payment. This can be especially useful for international transactions where traditional banking may be costly or unavailable.
Participation in DeFi. Tether is widely used in the decentralized finance (DeFi) space for lending, borrowing, and earning through various protocols. Its stability makes it an attractive asset for participation in DeFi projects, while reducing the risks inherent in cryptocurrencies with volatile rates.
Despite the convenience of using Tether or any other cryptocurrency, it is important to do your due diligence, understand the risks involved, and stay up to date with the latest developments around the market and regulatory landscape.