What is Tether (USDT)? This is one of the main questions we received in recent months. Tether is now one of the largest cryptocurrencies in the world. However, this is not a traditional virtual currency. There are many things related to it that we will share with you in this article.
Tether is a stablecoin that allows users to hedge against volatility in the market. Moreover, Tether can also be used to send fast and cheap transfers. But there are many other things related to Tether. This guide will be about it and how this virtual currency became one of the largest in the world.
What Are Stablecoins?
The cryptocurrency market is known for Bitcoin (BTC), Ethereum (ETH) and other volatile digital assets. Most of them tend to have large fluctuations on a daily basis. Bitcoin, for example, can move several hundreds of dollars in just minutes.
As you can see in the image above, BTC tends to move a lot. This can be very inconvenient for many users that want to send and receive money across borders. Moreover, if you are a person that does not tolerate price fluctuations, then Bitcoin might not be the best option for you.
However, the cryptocurrency market has thought of a solution for those users that want to hedge against volatility. The solution is stablecoins, and Tether (USDT) is one of them.
Before we answer the question “What is Tether?” we need to understand the “stablecoin” term. Stablecoins are cryptocurrencies which price does not fluctuate or fluctuates very little. Stablecoins usually follow the price of a fiat currency such as the U.S. dollar (USD), the euro (EUR) or the British pound (GBP).
In order to do so, stablecoins are backed with a 1 to 1 ratio of fiat currencies. For example, if we have a stablecoin that follows the price of the British pound, each stablecoin will be worth 1 GBP. No matter how much volatility there is in the cryptocurrency market, the stablecoin will always be worth 1 GBP.
It will be the same as other stablecoins. You can see Tether (USDT), USD Coin (USDC) or other virtual currencies that are linked to the price of the U.S. dollar. Basically, each USDT is backed by actual assets on a 1-to-1 basis.
What is Tether?
Tether (USDT) is the largest stablecoin in the world. This is the first thing you need to know. Tether follows the price of the US dollar. One USDT is worth one dollar. If you have 10 USDT, you can say that you have 10 dollars.
Due to the expansion that this virtual currency had in the market, nowadays is the most traded coin in the world. Even more than Bitcoin. This is the shortest answer to the ‘What is Tether’ question.
Tether was released to the market using the OMNI blockchain. In this way, USDT could be moved on-chain using Bitcoin’s underlying technology. However, over the last years, new USDT coins have been issued using other platforms, including Ethereum (ETH) and Tron (TRX).
It is now possible to buy Tether (USDT) using a wide range of exchanges. Binance is one of them. We couldn’t leave this “What is Tether (USDT)?” guide without this valuable information.
What is Tether Used For?
The reason behind the above-mentioned expansion is related to the way in which traders use it. Considering that exchanges tried to avoid handling fiat currencies, they added support to stablecoins. This is why many trading pairs such as BTC/USDT, ETH/USDT or LTC/USDT have larger volumes than BTC/USD, ETH/USD or LTC/USD.
Furthermore, receiving and sending USDT is easier and faster than USD. For example, if you want to withdraw funds from an exchange to your bank account in fiat currencies, the transfer might take several days to arrive. If you withdraw USDT, the transfer might take just a few minutes.
Moreover, you can use USDT as any other virtual currency in the market. Indeed, as the Decentralized Finance (DeFi) space expanded, stablecoins offered many opportunities to holders. It is now possible to earn rewards by lending them to other users.
For example, you can deposit 10,000 USDT coins in a DeFi platform such as AAVE and start earning interest on your funds. In this case, the deposit APY (Annual Percentage Yield) for USDT is 3.60% per year. Which is much more than what private banks are offering all over the world.
Although USDT is the largest stablecoin in the world, there are others such as USD Coin (USDC), True USD (TUSD), or DAI, among others. Each of them will work in a different way and offer different solutions to users.
Tether is basically used for trading. However, this is not the only use case for USDT. As we mentioned before, Tether can be also used in DeFi platforms, to send and receive transactions and also to reduce your exposure to volatile cryptocurrencies.
Which are Tether (USDT) Use Cases?
Tether has different use cases, as we have seen in the previous section. These use cases include the following:
- Trading with USDT
- Hedging Against Volatility in the Market
- Provides Fiat-Based Tokens to Blockchain Networks
- Send and Receive Cross-Border Payments
- Store funds without using fiat currencies directly
- Lend and Borrow funds
There are many other use cases for Tether. The USDT coin has been expanding all over the world and it can be used on a wide range of platforms. Developers continue to create new solutions and services for USDT users.
You would find a large list of things you can do with Tether. In this “What is Tether (USDT)” guide we shared some of them.
Although Tether is now working as a stablecoin for the crypto market, the company behind Tether wants to expand its reach. The goal is to find a larger number of clients from corporations to shops or for commerce. For example, it might be possible for some salaries to be paid in USDT. Moreover, some companies might prefer to use USDT in order to make instant transactions.
How Does Tether Stay on $1?
To fully understand What is Tether (USDT), we need to clearly know how Tether does to stay on $1. The fast answer is that Tether is backed by real funds and dollars to back the supply available in the market.
Tether is backed on a 1-to-1 basis with actual and real assets. These assets include U.S. dollars, euros and more. These funds are held in the Tether platform’s reserve account. Thus, how does Tether Stay on $1? Each USDT is backed by real assets and real-world currency. This provides protection to users from the volatility of cryptocurrencies.
This is what the company claims. Nevertheless, there have been many controversies around Tether. We will talk about these controversies in the coming section related to Tether controversies.
Is Tether Safe?
Tether reserves are currently stored on Deltec Bank. The company is using this entity in order to receive and send payments in USD. Most of Tether clients, are using Deltec Bank in order to exchange their funds for USDT.
Deltec is a banking institution located in the Bahamas and that has invested in Bitcoin. This bank allows clients to move funds even during weekends. In this way, USDTs can be created even during the weekends.
The company claims that all the USDT coins in the market are fully backed. During a recent interview, Stuart Hoegner, the CTO & General Counsel of iFinex, the company behind Tether, explained that each USDT is fully backed by the company’s reserves.
These reserves include traditional currencies, cash, other assets and even loans. Tether has always been able to provide clients with USD. Moreover, the firm claims they have always honoured their redemptions.
However, it is difficult to know what can happen with Tether in the future. Regulations could eventually harm the company and USDT could disappear. That’s certainly a possibility. This is why it is always important to have a clear diversification strategy. Several stablecoins are currently available in the market.
What is Tether (USDT)? – Controversies
There have been many controversies harming Tether’s reputation in the market. Due to this reason, several investors do not trust the digital currency. To have a complete “What is Tether (USDT)?” guide, we decided to share with you some of these controversies.
USDT Was Used to Manipulate Bitcoin Prices
Our “What is Tether (USDT)?” guide should have a section on Tether controversies. Indeed, there were many in the last years. Back in June 2018, Finance Professor John Griffin released a paper claiming that USDT coins were used to stabilize Bitcoin prices during bear markets.
The paper summary reads as follows:
“Using algorithms to analyze blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month-ends. Rather than demand from cash investors, these patterns are most consistent with the supply-based hypothesis of unbacked digital money inflating cryptocurrency prices.”
However, some analysts have answered back to these claims. For example, Alex Kruger, trader and economists, wrote that Bitcoin purchases with USDT during price downturns could be related to participants trying to “buy the dip” or just doing arbitrage across exchanges.
Tether’s Loan to Bitfinex
Tether has also been accused of giving a loan of $850 million to Bitfinex in order to cover-up losses. Due to this reason, the New York Attorney General (NYAG) has been investigating the company.
The firm behind this stablecoin has been always ready to cooperate with regulators. For example, in a letter filed with the New York Supreme Court, the NYAG explained that Tether and Bitfinex have been very cooperative to solve this issue. Furthermore, additional documents were going to be handed to local regulators.
This shows the FUD around USDT has been mostly to push Bitcoin price down. Market participants have their own interest in having Tether FUD going around for some time.
Bitfinex Loan Repayment
Tether announced on February 5th that Bitfinex has repaid its loan. The $550 million USD loan has been paid in January by Bitfinex. According to the official announcement, Bitfinex made the payment in fiat currency. Apparently, the funds have been transferred to Deltec, the official bank offering services to Tether and located in the Bahamas.
It is worth mentioning that all interest due on the loan has also been paid. Moreover, the company informed that the line of credit has been cancelled. The FUD around this issue should now be clarified and taken into consideration. It will be definitely important to follow the fraud probe case opened by the New York Attorney General’s office in 2018.