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Tether (USDT) is one of the most popular stablecoins. It was designed as a 1-to-1 asset backed by the US dollar. The coin is available on many blockchain networks and has experienced increased trading volume and increased liquidity over the past few years.
Like other stablecoins, USDT is valuable in cryptocurrency trading because it allows traders to hedge against the market volatility that is common with BTC and other crypto assets. In addition, using stablecoins avoids additional costs and delays when converting between cryptocurrency and fiat.
Introduction
Tether is a key element of the cryptocurrency ecosystem. As of December 2020, Tether was the fourth largest cryptocurrency in the world with a market capitalization of almost $20 billion, behind only Bitcoin, Ethereum and XRP. In addition, it is considered the coin with the highest daily trading volume - even more than Bitcoin.
So what is Tether and how can it be useful?
What is Tether (USDT)?
Tether (USDT) is the world's first stablecoin (cryptocurrency whose value is equal to the value of fiat currency). Originally called Realcoin, Tether was released in 2014 by Bitcoin investor Brock Pierce, entrepreneur Reeve Collins and programmer Craig Sellers.
USDT was initially issued on the Bitcoin protocol through the Omni Layer, but was later implemented on other blockchains. Now, as you can see in the chart below, the bulk of its supply exists on Ethereum in the ERC-20 token format. Tether is also issued on blockchains such as TRON, EOS, Algorand, Solana and OMG Network.
Tether, like many of the world's leading cryptocurrencies, has experienced both ups and downs.
At first, the price of USDT was not stable, sometimes even reaching $1.2. However, since the beginning of 2019, the coin has become less volatile. This is likely due to the constant growth in trading volume and the general development of cryptocurrency markets.
How does Tether (USDT) work?
The main advantage of stablecoins is their relative stability compared to traditional crypto assets. The appeal of Tether as a stablecoin lies in its tethering to fiat currency. USDT is initially pegged to the dollar: for every USDT in circulation there is $1.
The whitapaper Tether says:
Each unit of Tether issued into circulation is backed 1:1 (i.e. one Tether USDT equals one US dollar) by a corresponding unit of fiat currency held in an account held by Hong Kong-based Tether Limited.
Initially, the asset that guaranteed the price of Tether was the dollar in a 1:1 ratio, but over time it began to be backed by other real money, assets and funds received from loans.
As you can see in the USDT/USD chart below, the coin (usually) trades with the US dollar at a stable 1:1 rate. However, the price of USDT may be affected by significant market events.
Importance of Tether (USDT)
Tether bridges the gap between cryptocurrency and fiat currencies. Thanks to it, investors can trade against the US dollar without experiencing the problems associated with the volatility of regular cryptocurrencies.
Confident in stability, investors can own a digital asset that is similar in properties to fiat currency, but at the same time easily trade other coins on the cryptocurrency markets. Tether's key features make it a popular coin, although it is not immune to risks.
Main characteristics
Ratio 1:1 (USD to USDT)
Stability (to the same extent as the US dollar)
Availability on different blockchains
More use cases than traditional cryptocurrencies
Tether (USDT) Use Options
A stable asset in a volatile market
If the price of Bitcoin or other crypto assets drops quickly, you can exchange them for USDT instead of trying to cash out.
Easy transfer of funds between exchanges
With Tether, you can quickly move your funds between exchanges. It can also be useful for arbitrage trading with other coins.
Trading exclusively on cryptocurrency exchanges
Some exchanges do not have fiat deposit/withdrawal features but allow USDT trading. With Tether, you can trade on these exchanges without having to worry about market volatility when placing your main trading funds in BTC (or other cryptocurrencies).
Trading in Forex style
Since USDT is pegged to the dollar, you can trade Forex style by exchanging local currencies (not the US dollar) for USDT when their value against the dollar is high. Then, when the local currency falls, you can withdraw the money in local currency or exchange it for other assets.
How to store Tether (USDT)
Apart from Binance and other cryptocurrency exchanges, you can store USDT in various cryptocurrency wallets. These include web and mobile wallets (such as Trust Wallet), as well as cold storage hardware wallets (such as Ledger) through third-party software wallets.
Since USDT is implemented on different blockchains, you need to make sure that you are transferring funds within the same network.
For example, if you go to the Binance USDT withdrawal page, you will be offered five networks to transfer: Binance Chain (BEP2), Binance Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI) and Tron (TRC20).
Available networks for transferring USDT to Binance.
Therefore, be careful: if you choose the wrong network, you will lose your funds. For example, if you try to send Omni USDT to an ERC-20 USDT address, your funds will be lost.
Please note: As of December 2020, Ledger only supports the ERC-20 network for USDT. This means that USDT located on the Bitcoin blockchain (Omni Layer) is not available for transfer to Ledger hardware wallets.
Other cryptocurrencies Tether
Besides USDT, Tether has other stablecoins:
EURT: Tether coin pegged to the euro
CNHT: Tether coin pegged to the Chinese Yuan
XAUT: Tether coin pegged to real gold
On Tether's "transparency page" you can see the volume of each coin in circulation across different blockchains.
Summary
Stablecoins make crypto trading more convenient by eliminating the need for users to repeatedly convert between crypto and fiat. This makes USDT an attractive asset for cryptocurrency trading.
While Tether's true dollar backing has been called into question many times, trading volumes over the past few years strongly suggest belief in its value as a stablecoin. However, in addition to USDT, you can also use other stablecoins, such as BUSD, USDC, TUSD and PAX.
