Tether (USDT) is a cryptocurrency issued by Tether Limited, a company controlled by the owners of Bitfinex. Tether is considered a stablecoin and even was originally called “Realcoin” in 2014 because it was designed to be always worth US$1. To simplify the concept, Tether is a digital dollar.
While the concept is amazing on paper, there are misunderstandings and controversies surrounding the coin. Let’s clarify how the first popular stablecoin works, its use, and whether it is a good asset to hold.
How Does Tether Work?
Tether Limited keeps the reserves of Tether tokens and facilitates fiat deposits and withdrawals. Additionally, it mints and destroys the tokens to stabilize the coin’s value.
Tether on Bitcoin
Tether was launched on the Omni Layer, a protocol built on the Bitcoin blockchain. The ledger is stored on the Bitcoin blockchain and Liquid, a Bitcoin sidechain, and transactions are searchable through Omni Explorer.
Tether on Other Blockchains
Tether is also available on other blockchains, such as Ethereum, Tron, and EOSIO. This means that new assets can be natively created on these platforms. The largest market for USDT happens to be Ethereum.
What Is Tether Used For?
Tether has become an indispensable part of the crypto markets. Currently, there are more crypto trading pairs that are priced in USDT and other stablecoins than in US dollars.
You can now buy Tether (USDT) in 5 minutes and move funds seamlessly – digitized dollars can then be turned into crypto assets and back again. To be more specific, there are three most common use cases.
- Trading: Users can convert the cash they need for trading to USDT and then use it to purchase other cryptocurrencies to reduce fees and waiting times.
- Lending: USDT is widely offered as a landing asset since lenders don’t have to worry about incurring losses due to volatility.
- Cross-border payments: International money transfers can be carried out within minutes from/ to any part of the world.
What Makes Tether Valuable?
Stablecoins help traders and investors mitigate the risks of extreme volatility that is not uncommon for cryptocurrency markets.
Let’s say you move some of your crypto funds to USDT. Thus, you are not exposed to a sudden drop in the price of crypto since the USDT price is locked. At the same time, you’re not moving value to fiat, so you avoid crypto-to-fiat transaction costs.
Many crypto exchanges have also found Tether valuable. With USDT, they facilitate crypto-to-crypto transactions and increase the number of trading pairs they can offer. Besides, it allows traders to trade crypto in countries where fiat trading is prohibited.
Is It Safe to Hold Tether?
Tether is the biggest stablecoin in the space, with no significant competitors. Even comparing to other cryptocurrencies (not necessarily stablecoins), it holds up really well, ranking #4 by market capitalization. There are no signs of it stopping after 7 successful years. At this point, it is one of the “too big to fail” projects in the crypto space.
But don’t expect it to increase value. That is the whole point – USDT is kept at the US$1 mark, and the team behind it intends to keep it that way. Tether is a useful tool, but it is not an investment in a traditional sense.