Tether USD

What is Tether (USDT)?

USDT is a cryptocurrency that is designed to hold the same value as a unit of fiat currency, called a stablecoin. Not to be confused with the recently collapsed algorithmic stablecoin UST (Terra USD), USDT is an asset-backed stablecoin that is supposed to hold its peg by holding various assets redeemable for US dollars.

Stablecoins were created to give cryptocurrency traders a combination of the US dollar’s stability (or, the economic standard that one dollar equals one dollar irrespective of depreciation and inflation) and cryptocurrency’s fast, unrestricted borderless settlement.

When Was Tether Launched?

Originally called Realcoin, Tether was launched in 2014 and functioned as a second-layer token built on Bitcoin’s blockchain.

It was later renamed to USTether and finally to USDT, and was also updated to work on the Ethereum, EOS, Tron, Algorand, and OMG blockchains.

Who are the Founders of Tether?

Tether, called Realcoin at the time, was founded by Brock Pierce, Reeve Collins, and Craig Sellars.

Collins served as the CEO of Hong Kong-based Tether for its first two years. An experienced entrepreneur, he had previously founded companies in the online advertising, entertainment, and gambling industries. After his work at Tether, Collins went back into the marketing and advertising industry.

Brock Pierce meanwhile is well-known in the cryptocurrency sphere, having founded venture capital firm Blockchain Capital before Tether. In the same year as Tether’s founding, he became the director of the Bitcoin Foundation.

The third founder, Craig Sellars, was a member of the Omni Foundation, whose Omni Protocol was used to establish Realcoin atop the Bitcoin blockchain.

How Does Tether Work?

Unlike most of the other top cryptocurrencies by ‘market capitalization’, USDT doesn’t have its own blockchain. Instead, it operates as a second layer token atop the blockchains of Bitcoin, Ethereum, EOS, Tron, Algorand, Bitcoin Cash, and OMG.

How is the Tether Network Secured?

Since USDT runs on these other blockchains, it is secured by their mechanisms and does not require its own hashing algorithm for security.

Its reliance on these other blockchains, especially the highly secure Bitcoin and Ethereum blockchains, allows USDT to take full advantage of their security.

What Makes Tether Unique

As an asset-backed stablecoin, Tether is pegged to the US dollar by its reserves, which include commercial paper, fiduciary deposits, cash, reverse repo notes, and treasury bills. The value of these reserves should equal the number of USDT in circulation.

However, Tether’s reserves have never been audited by an independent third party, and there have been many controversies regarding the veracity of Tether’s claims about its reserves.

These controversies have caused Tether to lose its peg to the US dollar several times, on one occasion sinking as low as $0.88.

What is the Use of Tether?

The cryptocurrency market’s characteristic volatility makes stablecoins, including Tether, a safe harbor where traders can book profits quickly. Tether allows you to wait out extreme fluctuation without having to cash back out into fiat currencies.

In April 2022, USDT accounted for two-thirds of exchanges out of Bitcoin by value.

USDT can also represent a way for traders to transact in a US dollar equivalent, without having to rely on a middleman such as a bank. In turn, this can make transactions faster and cheaper.

USDT can also provide an opportunity for users to interact with decentralized finance (DeFi) applications without needing to use more volatile cryptocurrencies. Currently, however, other stablecoins are used more frequently for this, and Tether’s main utility remains on centralized exchanges.

Who Controls Tether?

Tether is issued by a Hong Kong-based company also called Tether Limited, which has been involved in several lawsuits over alleged market manipulation. Tether Limited is controlled by the owners of the cryptocurrency exchange Bitfinex.

How Much Tether Is In Circulation?

As of the beginning of June 2022, there were over 72 billion USDT in circulation. This amount is supposed to be limited by the company’s reserves.

Although Tether provides a daily transparency report that lists its asset reserves and liabilities (which correspond to the circulating USDT), there have been no third-party audits.

In April 2019, Tether Limited’s counsel claimed that each USDT was backed by $0.74 in cash and cash equivalents. In May 2021, Tether reported that just 2.9% of USDT were backed by cash and over 49.6% were backed by commercial paper. In October 2021, it was announced that Tether would pay a $41 million fine to the US Commodity Futures Trading Commission for misleading claims that it was fully backed by the US dollar. A few days later, the research firm Hindenburg offered up a $1 million bounty for information on Tether’s backing and deposits.

How Do You Buy Tether?

You can purchase USDT on many major exchanges as well as on decentralized finance applications using several blockchains. Tether is widely available and famous for being a convenient entry and exit from the volatility of cryptocurrencies.

In fact, the daily trading volume of USDT often exceeds that of Bitcoin, showing that many users see Tether as their stablecoin of choice. Another advantage of Tether is that it tends to be paired with a lot of other cryptocurrencies, making it far easier to trade with than fiat.

Is It Possible to Buy Tether Instantly?

Like with most other cryptocurrencies, buying Tether using fiat may not always be truly instantaneous. Many on-ramps or purchasing platforms may need time to settle fiat payments first or complete Know Your Customer protocols. However, the settlement of USDT itself is practically instantaneous.

That said, decentralized finance offers truly instant Tether purchasing. The actual speed depends on which blockchain is being used. Still, the longest wait may be as little as ten minutes (using Bitcoin’s blockchain).

How Do You Store Tether?

You can store USDT in crypto wallets. There are several common types of these:

• Cold wallet. Cold wallets keep private keys offline and out of the reach of hackers and other bad actors. They could be in the form of electronic devices not connected to the internet, paper, or some other physical copy of the private key.
• Hot wallet. Unlike cold wallets, these connect to the internet. They could be either desktop clients or online/web wallets that store credentials with the online wallet provider rather than the user’s hardware.
• Exchange wallet. These are forms of online or web wallets but don’t actually hold the user’s Tether. When sending USDT to an exchange account, there may be some form of identification system or memo in place to ensure that the funds reach the correct user.

Tether Energy Consumption

USDT doesn’t run its own blockchain or need any sort of consensus mechanism, so attempting to evaluate its energy consumption isn’t very applicable.

As such, it could be suggested that USDT’s carbon footprint corresponds to that of Tether Limited and its operations and infrastructure. This compares very, very favorably to the energy consumption of the infrastructure surrounding the US dollar with all of its printing presses, security, vaults, transport, etc.

Is Tether a Good Investment?

Tether offers traders a crucially fast exit from the volatility of cryptocurrency tokens and into the safe hands of the US dollar’s stability. This can allow traders to wait out downtrends or bear markets and quickly snap back into crypto to buy the dips.

It also lets traders in countries with weaker or more volatile currencies park their funds in a US dollar equivalent without having to enter forex markets. This allows traders to avoid forex trading restrictions and limitations.

On the other hand, being pegged to the US dollar means that Tether is subject to the depreciation or devaluation that most currencies experience thanks to constant supply by central bankers. This is why scarce currencies like Bitcoin are regarded as good stores of value.

This also makes USDT subject to other risks faced by the US dollar itself, such as the chance that it may cease to be used as the world’s reserve currency.

Investing in Tether also shows no real upside aside from the marginal gains one may expect from forex trading and creating a safe haven from bearish market conditions.

What are the Risks of Owning Stablecoins?

Beyond sharing the US dollar’s risk profile, Tether brings its own risks to the table. Previous controversies and legal challenges have seen USDT lose its tie to the dollar. More of the same could put investors at risk again.

Furthermore, increased regulatory pressure could lead to Tether having to subject itself to a third-party audit. Already considered too big to fail by the crypto community, being shown in a negative light by an audit may be catastrophic for Tether and cryptocurrency as a whole.

Along these same lines, USDT as an asset-backed stablecoin may see some of the assets in reserve losing value. Since there have been no third-party audits, there has been much speculation about the quality and value of some of the bonds in Tether’s reserve.

Growing government interest in cryptocurrencies has also given rise to Central Bank Digital Currencies, or CBDCs. While these have not been implemented in the US or Europe yet, they have been floated by lawmakers, and their potential effect on stablecoins is currently unclear.

Finally, like any cryptocurrency, stablecoins are often the subject of attack. Following the fall of TerraUSD (UST), public awareness has increased regarding the vulnerabilities of stablecoins and their mechanisms.

Unlike algorithmic stablecoins such as UST, however, Tether is an asset-backed stablecoin. As such, the onus is on Tether to live up to its promises and prove the legitimacy of its reserves.