Tether ranks third among the biggest cryptocurrencies by the measure of market value. Its history mainly goes back to 2014, following the issuing of a dollar-backed digital currency, realcoin, on the Bitcoin network. The main reason was to help transfer fiat currencies on the blockchain.
Tether refers to the issuer company, while tether, or USDT, is the token.
Since then, there has been an expansion of Tether to different blockchains, which has seen the launching of various tokens and growth in popularity.
How does Tether’s USDT Work?
Tether falls under the category of what is known as stablecoins. Stablecoins stand for digital currencies tied to real-world assets. This may work through the US dollar, for instance, to maintain its stable value, unlike most volatile cryptocurrencies.
Analogy: Tether works with the same functionalities as a casino chip. When one wants to undertake games in a casino, they change their money to casino chips, which are an easy representation of what they are worth. Therefore, they represent money without being money.
With its design, Tether is pegged to the dollar. Thus, with expectations, USDT’s price is supposed to be equivalent to $1. Stablecoins, in general, are a link to real-world cryptocurrencies, shielding holders from volatility. Additionally, they are easy to transact and trade on and between blockchains.
In addition to USDT, pegged on the US dollar, Tether also has several fiat stablecoins, one pegged to gold.
Tether does not have its blockchain. As such, users can transact with USDT on and across bigger blockchain platforms, including:
Ethereum
Tron
Algorand
Solana
Avalanche
Polygon
There is no mining of USDT, and it is not decentralized. It has the central entity, Tether, the company. It mints and burns USDT tokens to adjust the supply of coins to user demands.
What Backs USDT’s Value?
Within its claims, Tether’s backing is 100% by assets in its reserves. This ensures the one-to-one exchange ratio to the currency or asset to which their prices are anchored.
This works similarly to a casino with enough cash in its vault to cover every chip in play. The reserve guarantees that it is possible if everyone wants to convert USDT into fiat, it can happen.
Thus, according to its report, the reserves contain a mixture of cash, cash equivalents, commercial paper, corporate bonds, loans, and other investments that include digital currencies.
Unique Features of Tether USDT
One unique and the most outstanding feature of USDT is that it introduces the stability of fiat currency into the blockchain.
Thus, it becomes helpful in storing or transferring value, as it is always worth the same price. Therefore, its owner does not have to worry about losing purchasing power.
On the other hand, other cryptos can fluctuate in value, which is dependent on the market supply and demand. By design, however, USDT is always worth a dollar.
Additionally, Tether, the parent company, claims to have assets equal to the total outstanding market value of the currency in holding.
However, once in the crypto marketplace, it trades like other currencies via blockchain technology.
USDT’s Controversies
The main issue surrounding the company has been calling into question the transparency and authenticity of the reserve.
In early 2021, the company undertook the publishing of reports on its assets. However, still, the company fails to specify its exact assets in holding.
The dire scrutiny has been on the non-cash holding, including what they are, how they are valued, and how easily Tether can convert them into cash.
Is Tether The Only Stablecoin?
Tether is not the only stablecoin out there but ranks among the biggest and most popular. Others may include USD Coin and Binance USD.
The transparency surrounding their reserves has been an issue for many investors. However, just like other cryptocurrencies, do the requisite research before venturing.
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