TL;DR

Tether (USDT) is one of the most popular stablecoins out there. It is designed to maintain a 1:1 value ratio with the US dollar. The currency exists on many different blockchains and, in recent years, has seen increases in trading volumes and liquidity.

Like other stablecoins, USDT is useful for cryptocurrency trading as it allows traders to avoid the volatility present in the BTC and other crypto markets. Using stablecoins also removes the extra costs and delays in converting (exchanging) between cryptocurrencies and fiat currencies.


Introduction

Tether is a fundamental part of the cryptocurrency ecosystem. As of December 2020, Tether ranked as the world's fourth-largest cryptocurrency, with a market capitalization of nearly $20 billion, behind only Bitcoin, Ethereum, and XRP . Tether often ranks as the currency with the highest daily trading volume, surpassing even Bitcoin.

But what is Tether and how can it be useful to you?


What is Tether (USDT)?

Tether (USDT) was the first stablecoin (cryptocurrency with a value linked to a fiat currency). It was originally launched in 2014 under the name Realcoin by Bitcoin investor Brock Pierce, entrepreneur Reeve Collins and software developer Craig Sellers.

USDT was originally issued on the bitcoin protocol through Omni Layer, but has also migrated to other blockchains. In fact, as we can see in the chart below, most of its current supply is on Ethereum as an ERC-20 token. It is also issued on several other blockchains, including TRON, EOS, Algorand, Solana, and the OMG Network.



Tether has gone through moments of success and also controversies – as has happened with many of the world's most important cryptocurrencies.

Especially in its early days, the USDT price showed considerable volatility, reaching US$1.2 at one point. However, the coin has experienced much less volatility since the start of 2019. This is likely due to a steady increase in its trading volume and the general advancement of cryptocurrency markets.


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How does Tether (USDT) work?

The usefulness of Stablecoins lies in their relative stability, unlike more traditional cryptoassets. As a stablecoin, Tether's attraction is its tethering or pegging to fiat currency. USDT was originally pegged in exact proportion to the US Dollar (USD), maintaining $1 for every USDT in circulation.

As per the original Tether whitepaper:

Each unit of Tether issued into circulation is pegged/collateralized - in a 1 to 1 ratio (i.e. 1 Tether USDT equals 1 US Dollar) - by the corresponding unit of fiat currency held on deposit by Tether Limited, headquartered in Hong Kong.

While Tether's original 1:1 asset was USD, there has been an adaptation to include holding/storing collateral with other real-world cash equivalents, assets, and receivables.

As we can see in the USDT/USD chart below, the currency (generally) trades at a stable 1 to 1 rate with the USD. However, more significant market events could affect this price ratio.

gráfico usdt usd


Why is Tether (USDT) important?

Tether bridges the gap between cryptocurrencies and fiat currencies. It offers a very simple form of exchange for investors, at a 1:1 ratio with the US dollar (USD), without the inherent volatility of most other cryptocurrencies.

Thanks to this stability, investors can hold/store digital assets as common fiat currency, but with the convenience of being able to trade them with other cryptocurrencies on the crypto markets. Tether's characteristics make it a very popular currency, although it is not completely immune to risks.

Main features

  • 1:1 ratio (between USD and USDT)

  • Stability (as much as the USD dollar can be considered stable)

  • Available on different blockchains

  • Different use cases when compared to traditional cryptocurrencies


Tether (USDT) Use Cases

Quick access to a stable market

If the price of Bitcoin or another cryptocurrency is falling quickly, you can exchange it for USDT in an instant, meaning there is no need to make a withdrawal.


Easy movement of funds between exchanges

With Tether, you can move your funds between exchanges/brokers very quickly. This can also be very useful for arbitrage trading with other currencies.


Trades on exchanges that only operate with crypto

Some exchanges do not have features for fiat deposits and withdrawals, but allow USDT trading. With Tether, you can trade on these exchanges without having to worry about market volatility when investing your capital in BTC (or other cryptocurrencies).


Forex-style trading

Since USDT is pegged to the dollar (USD), you can trade Forex style, exchanging local currencies (outside the US) for USDT when the value is high relative to the USD. When the value of the local currency drops, you can sell your USDT balance or exchange it for other assets.


How to store Tether (USDT)

In addition to Binance and other cryptocurrency exchanges, you can store your USDT in several cryptocurrency wallets. This includes web and mobile wallets (like Trust Wallet) or cold storage hardware wallets (like Ledger) through third-party software wallets.

Since USDT is issued on several different blockchains, you must ensure that you are transferring to/from the same network.

For example, if you go to the Binance USDT withdrawal page, you will find five different network options for transfer: Binance Chain (BEP2), Binance Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI), and Tron (TRC20 ).

Network options for transferring USDT on Binance.


So be careful. If you use the wrong network, you may lose your funds. For example, if you try to send USDT Omni to an ERC-20 USDT address, your transfer will likely be lost.

It is worth noting that, at the time of writing this article, in December 2020, USDT ERC-20 is the only type compatible with the Ledger wallet. In other words, USDT running on the Bitcoin blockchain (Omni Layer) is not available for transfers to Ledger hardware wallets.


Other cryptocurrencies Tether

In addition to USDT, Tether also has other stablecoins:

  • EURT: Tether currency pegged to the Euro

  • CNHT: Tether currency pegged to the Chinese Yuan

  • XAUT: Tether currency pegged to physical gold


You can see the amount of each coin in circulation on various blockchains on Tether's Transparency page.


Final considerations

Stablecoins provide a lot of practicality in the world of crypto trading, as they reduce the need to make multiple conversions between fiat currencies and cryptocurrencies. Having USDT assets on hand is certainly very useful for cryptocurrency trading.

While some doubts have arisen about the validity of the reserves, volumes in recent years indicate that users have faith in Tether's value as stablecoins. In addition to USDT, you can also use other stablecoins such as BUSD, USDC, TUSD and PAX.