What is Tether (USDT), and why is it needed?


Tether (USDT) is a stablecoin, a type of cryptocurrency specifically designed to maintain a stable value in relation to a particular asset, usually the US dollar. This feature makes Tether a reliable and secure choice for crypto trading and investment. Its goal is to offer a digital substitute for conventional fiat currencies, which can be easily transferred between exchanges or utilized for transactions without requiring a traditional bank account.

The popularity of Tether has surged over the past few years among cryptocurrency investors, and it has emerged as the world’s third-largest cryptocurrency by market capitalization. Additionally, Tether’s daily trading volume is frequently higher than that of Bitcoin, making it a highly liquid option for trading. If you are searching for a secure and steady means of investing in cryptocurrencies, Tether could be a viable alternative.

What is a stablecoin?

A stablecoin is a type of cryptocurrency designed to maintain a stable value relative to a specific asset or group of assets. This is achieved by pegging the stablecoin’s value to an external asset, such as the U.S. dollar, gold, or a basket of other cryptocurrencies. So, as the name suggests, stablecoins aim to keep the exchange rate stable, and the value does not fluctuate as much as with other cryptocurrencies.

This value-stabilizing feature makes them popular options for investors who want to avoid the high volatility of cryptocurrencies. Stable currencies also provide the necessary security for trading and loans in the DeFi world, i.e., their role in the crypto market is significant.

It is helpful to know that there are many stablecoins, and some try to keep the price stable differently than others.

Different types of stablecoins

  • Fiat-backed stablecoin – stablecoin is tied to foreign exchange reserves and tends to maintain a 1:1 ratio with fiat currency, such as the euro or the dollar. E.g., USDT.
  • A crypto-backed stablecoin – a stablecoin tied to a cryptocurrency that allows it to be transferred to another blockchain. E.g., Wrapped Bitcoin (WBTC).
  • A stablecoin tied to the commodity – tied to a tangible commodity such as gold. E.g., Pax Gold (PAXG)
  • Algorithmic stablecoin – stablecoin maintains a steady price with the help of an algorithm by regulating the supply. E.g., DAI & FRAX.

Read more: EUROe — First EU-regulated stablecoin launched in Finland

History of Tether

Tether is a stablecoin initially launched on the market by a company called Tether Limited. Tether Limited was launched in 2014 with the aim of providing a safe and stable alternative for cryptocurrency trading. The company was founded by Brock Pierce, together with Reeve Collins and Craig Sellars. Tether Limited is owned by Hong Kong-based iFinex, which also owns the BitFinex crypto exchange.

Brock Pierce is a venture capitalist and entrepreneur who has been involved in blockchain and cryptocurrency for several years. In addition to Tether Limited, Pierce is also the founder of other blockchain-related companies, such as, Blockchain Capital, and Mastercoin (now Omni Layer).

Reeve Collins is the co-founder of Tether Limited and is known for his digital marketing and advertising work. He is the CEO of the digital marketing technology company BlueCava and has previously founded several other companies.

On the other hand, Craig Sellars was a software developer and blockchain expert before founding Tether Limited. He is also a co-founder of Omni Layer (formerly Mastercoin) and has worked on various blockchain projects such as Counterparty and BitShares.

At first, Tether was only tied to the dollar (USDT), but later, the company also started offering a version of Tether where the value was also tied to other currencies, such as the Euro (EURt) or the yen (CNHt).

The use of Tether quickly expanded through cryptocurrency trading services, as a result of which it grew to become one of the largest stablecoins in the cryptocurrency market in a short period of time.

Tether’s most significant growth spurt was seen in 2017, when the cryptocurrency market experienced the largest bull market until then, which started at the beginning of the year and continued until the end of the year. As you might expect, this bull market also positively affected the price of Bitcoin. As the price of Bitcoin skyrocketed and the total number of cryptocurrencies grew, so did Tether’s market value. By the end of 2017, Tether became the world’s fourth-largest cryptocurrency by market capitalization. In 2023, Tether has already moved forward and is the third-largest cryptocurrency by market value.

At the same time, the use of Tether was criticized as many crypto-investors suspected that Tether Limited did not have enough funds to pay back the dollars for all Tether coins listed on their market.

The company has regularly responded to criticism by claiming that all Tether coins have equivalent dollars for repayment. However, USDT has been accused of a lack of transparency, and some believe that proof of solvency is flimsy. In addition, many investors have criticized Tether for its ability to influence the price of cryptocurrencies by manipulating supply.

Although Tether has had a reasonably questionable history, it is still one of the most popular stablecoins and plays a significant role in cryptocurrencies.

How does Tether (USDT) work?

Tether (USDT) works like many other stablecoins, i.e., its value is tied to some traditional currency, such as the dollar, in this case. This means that every Tether coin has a repayment obligation against the dollar. When Tether was launched in the market, it was released on the Omni Layer protocol, based on Bitcoin-to the blockchain.

Since then, Tether has migrated to several other blockchains, such as Ethereum, TRON, EOS, Algorand, Solana, and OMG Network. This allows it to be used in different blockchain applications and brokers. Tether’s supply is the largest on the Ethereum network as an ERC-20 token but is also available on other blockchains. This makes it a versatile option for cryptocurrency trading and investing.

Tether can be bought and sold in the same way as other cryptocurrencies. USDT can be bought with dollars, euros, or other currencies and kept in a wallet or exchanged for another cryptocurrency.

It is important to note how Tether’s value remains stable as it is pegged to the dollar. This makes Tether a popular option for investors who want to avoid the volatility of cryptocurrencies.

In addition, many cryptocurrency exchanges offer Tether coins as a pair, which allows trading without the user having to transfer funds through a traditional bank.

The importance of Tether in the crypto ecosystem

Tether is a significant part of the crypto ecosystem, especially because it is one of the most popular stablecoins, and its market value is the highest in the stablecoin market.

Tether is a stablecoin that aims to provide an easy and secure way to manage digital assets in the crypto market. It works by bridging the gap between cryptocurrencies and fiat currencies, offering investors the ability to conduct one-to-one trades in dollars without the inherent volatility of cryptocurrencies.

This stability allows investors to hold digital assets similar to traditional fiat currency while facilitating trading in the crypto market. Tether’s developers have realized early on that the key to mass adoption of cryptocurrencies is to make them as simple and easy to understand as possible.

However, it is essential to remember that Tether (or any other cryptocurrency) is not immune to risks, and investors should always consider all risk scenarios before investing.

Why use Tether and not fiat currency?

You might want to use Tether instead of fiat money because it allows you to transfer funds faster and cheaper than fiat money. You can also take advantage of price movements in the cryptocurrency market without having to convert your funds back and forth between fiat currency and cryptocurrency. With Tether, you can keep your funds in the crypto ecosystem protected from volatility without withdrawing them to a bank account.

Another example of why someone might want to use Tether instead of fiat money is when trading or investing in cryptocurrencies. Some cryptocurrency exchanges do not accept deposits in fiat currency but require their customers to deposit and withdraw funds in cryptocurrencies. In this context, Tether can be used as a substitute for fiat currency, allowing customers to quickly and easily transfer funds from the wallet to the stock exchange and vice versa.

In addition, Tether can be used to hedge against the volatility of other cryptocurrencies. Tether’s dollar-pegged value offers a slightly more traditional way for users to participate in crypto investing.

What does the future of stablecoins look like?

Since the launch of Tether in 2014, stablecoins have grown into a huge market within the crypto sector. The popularity of stablecoins has grown exponentially over the years.

It is difficult to predict exactly what the future holds for stablecoins, but they will likely continue to gain popularity and usage in the coming years.

Some experts believe stablecoins will become a more widely accepted and used form of digital currency, especially in digital commerce and online transactions. Additionally, as more companies and organizations begin to explore the use of blockchain technology and the benefits it offers, stablecoins may become an increasingly important way to facilitate transactions and transfer value on these platforms.

Stablecoins can also play a role in developing the decentralized finance (DeFi) ecosystem, where they can be used as collateral or to facilitate the lending and guaranteeing of digital assets.

In addition, it is expected that more countries and central banks will start to issue their own digital currency, in which case stablecoins like Tether can play a decisive role in interoperability and cross-border payments.

In any case, it is essential to note that stablecoins are still a relatively new technology, and many things can still change in the future, so it is crucial to stay up to date and be aware of developments in the field.

USDT – Frequently Asked Questions

What is Tether (USDT)?

Tether (USDT) is a stablecoin, i.e., a type of cryptocurrency that aims to keep the price stable. Tether is used by investors who want to avoid the volatility typical of cryptocurrencies.

How does Tether (USDT) work?

Tether (USDT) is a collateralized stablecoin, which means it must have an amount of dollars in reserve equal to the tokens in circulation. When a user deposits fiat currency into Tether’s reserve, he receives a corresponding amount of USDT digital tokens in return. USDT can be sent, exchanged, or stored in the crypto ecosystem.

What is Tether (USDT) used for?

Tether (USDT) is a digital asset that moves on the blockchain as quickly as other digital currencies. The main difference with other cryptocurrencies is that USDT is pegged to real-world currencies on a 1-1 ratio.

Is USDT the same as USD?

USDT is not the same as the US dollar USD. USDT is a cryptocurrency that tracks the price of USD and often faces different financial regulations than USD in many jurisdictions.

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