Summary
Tether (USDT) is one of the most popular stablecoins. It maintains a one-to-one value ratio to the U.S. dollar. Tether is active on many different blockchains. Over the past few years, its trading volume has continued to increase and its liquidity has improved significantly.
Like other stablecoins, USDT is beneficial to digital currency trading, helping traders stay away from the market volatility of Bitcoin and other digital currency assets. Using stablecoins can also eliminate the additional costs and delays caused by exchanging digital currencies and legal currencies.
Introduction
Tether is an important part of the cryptocurrency ecosystem. As of December 2020, Tether is the fourth-largest cryptocurrency in the world, with a market cap of nearly $20 billion, behind only Bitcoin, Ethereum, and Ripple (XRP). It also regularly surpasses Bitcoin in daily trading volume. So, what exactly is Tether, and how can you use it effectively?
What is Tether (USDT)?
Tether (USDT) is the world’s first stablecoin (a digital currency that is pegged to the value of a fiat currency). It was originally launched in 2014 as “Realcoin” by Bitcoin investor Brock Pierce, entrepreneur Reeve Collins, and software developer Craig Sellers.
Initially, USDT was issued in the Bitcoin protocol through the Omni layer, and later migrated to other blockchains. In fact, as shown in the chart below, most of its supply is stored in Ethereum in the form of ERC-20 tokens. USDT is also issued in several other blockchains, including TRON, EOS, Algorand, Solana, and OMG Network.
Tether has also experienced success and controversy. Especially in the early stages, the price of USDT continued to fluctuate, even reaching $1.2 at some points in time. However, the stablecoin’s volatility has dropped significantly since the beginning of 2019. The reason for this may be attributed to the steady increase in trading volume and the overall development of the cryptocurrency market.
How does Tether (USDT) work?
The utility of stablecoins lies in their relative stability compared to more traditional digital currency assets. As a stablecoin, Tether's advantage is that it is tied to fiat currency (also known as "pegged"). It is said that USDT was originally fully pegged to the US dollar, with each USDT in circulation representing $1.
According to Tether’s original white paper:
All Tethers are pegged 1:1 to their corresponding fiat currencies and are fully backed by Tether’s reserve fund. The value of Tether’s reserve fund is published daily and updated at least once a day.
Although initially pegged 1:1 to USD assets, Tether has evolved to be able to be collateralized by other real-world cash equivalents, assets, and loan receivables.
As shown in the USDT/USD chart below, this stablecoin is (usually) traded at a stable 1:1 rate against the US dollar. However, major market events can have an impact on the price.
Why Tether (USDT) is Important
Tether bridges the gap between digital currencies and fiat currencies. With Tether, investors can easily trade USD at a 1:1 exchange rate, avoiding the inherent volatility of other digital currencies.
With this stability, investors are able to hold a digital asset similar to fiat currency and easily trade it for other tokens in the digital currency market. Despite the same risks, the key features of Tether make it a popular token.
Key Features
1:1 exchange (USD to USDT)
Stable (same stability as the US dollar)
Can be used on different blockchains
Use cases are different from traditional digital currencies
Tether (USDT) Use Cases
Gain market stability quickly
If Bitcoin or other digital currency assets fall rapidly, you can quickly convert them to USDT instead of withdrawing cash.
Easily transfer funds between trading platforms
With Tether, funds can be easily and quickly transferred between exchanges. This also facilitates arbitrage trading using other tokens.
Trading on a cryptocurrency-only exchange
Some trading platforms do not provide fiat currency deposit and withdrawal services, but support USDT transactions. After obtaining Tether, you can trade on these trading platforms without having to worry about the market fluctuations that come with investing your main trading funds in Bitcoin (or other digital currencies).
Forex trading
USDT is pegged to the U.S. dollar, and when the value of the local (non-U.S.) currency is high against the dollar, a foreign exchange-style transaction can be conducted to exchange it for USDT. The USDT can then be exchanged for cash or other assets when the local currency depreciates.
How to store Tether (USDT)
In addition to Binance and other cryptocurrency exchanges, USDT can also be stored through various cryptocurrency wallets. These include web and mobile wallets (such as Trust Wallet), cold storage hardware wallets (such as Ledger), and third-party software wallets. Since USDT is issued in a series of different blockchains, you need to make sure that you are transferring money in the same network.
For example, if you go to the Binance USDT withdrawal page, you can see five different network options for transfers: BNB Beacon Chain (BEP2), BNB Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI), and Tron (TRC20). Be careful when choosing a network. If you use the wrong network, you could lose all your funds. For example, if you send Omni USDT to an ERC-20 USDT address, your funds will likely disappear.
Please note that as of December 2020, ERC-20 USDT is the only type supported by Ledger. Therefore, USDT in the Bitcoin blockchain (Omni layer) cannot be transferred to Ledger hardware wallets.
Other Tether Coins
In addition to USDT, Tether also includes other stablecoins:
EURT: Tether pegged to the Euro
CNHT: Tether pegged to the Chinese Yuan
XAUT: Tether pegged to physical gold
Visit the Tether transparency page to see how much of each token is in circulation across each blockchain.
Summarize
Stablecoins reduce the frequency of traders exchanging between fiat currencies and cryptocurrencies, bringing many conveniences to the field of cryptocurrency trading. Therefore, USDT is a convenient asset that is conducive to cryptocurrency trading.
Although there are various questions about the validity of the reserve, the volume of transactions over the past few years proves that people believe in the value of Tether as a stablecoin. In addition to USDT, other stablecoins (such as BUSD, USDC, TUSD and PAX) can also be used.
