Tether (USDT) 101
Since the creation of Bitcoin, cryptocurrencies have changed the financial landscape, offering new ways to transact, invest, and store value. Among the vast range of options, Tether (USDT) stands out as the most important stablecoin, which is a special type of cryptocurrency. This article provides an introduction to Tether (USDT), exploring its nature and functionality.
What is Tether (USDT)?
Tether is the company behind the stablecoin USDT. As the name implies, stablecoins are cryptocurrencies designed to maintain a stable value by pegging them to stable assets. These assets are often fiat currencies like the US dollar and euro, or precious metals like gold. USDT specifically is pegged to the US dollar (USD), with a ratio of 1 USDT to 1 USD. This stability makes USDT a popular choice for traders and investors seeking to protect themselves from market volatility associated with other cryptocurrencies like Bitcoin or Ethereum. In fact, Tether's USDT is the most popular and valuable stablecoin with a market capitalization of $ 114 billion.
Tether and USDT are terms that are usually used interchangeably; however, there is a distinction between them. Tether Limited is the company that oversees the issuance and redemption of the stablecoin USDT, while the latest is the cryptocurrency designed to be pegged 1 to 1 with the US dollar. Moreover, there are other stablecoins associated with Tether like EURT (Tether Euro) or XAUT (Tether Gold) which are tied to the value of euro and gold respectively.
Origins of Tether
Realcoin was launched in 2014 by a group of developers led by Brock Pierce, Reeve Collins, and Craig Sellars. Their goal was to create a bridge between fiat currencies and cryptocurrencies in order to have seamless transactions between the two. The initial version of this stablecoin was built on the Bitcoin blockchain using the Omni Layer protocol. Later, on November 2014, the project was renamed Tether. Since then, Tether has expanded to other blockchains, including Ethereum, Polygon, Tron, Solana and others.
How does USDT work?
When a user wants to purchase USDT, they deposit an equivalent amount of US dollars into Tether Limited's reserve account. In exchange, Tether Limited issues an equivalent amount of USDT to the user. The reverse process occurs when a user wants to redeem their Tether for fiat currency. This ensures that USDT is fully backed by collateral.
The stability of Tether's stablecoin comes from its currency reserves. The company claims to hold dollars and other assets that are equal or greater than the total number of USDT in circulation.
Tether's reserves
After paying a $ 41 million fine to the Commodity Futures Trading Commission from the United States of America in 2021, Tether took steps to improve transparency and the quality of its reserves. In the past, the firm held commercial papers as part of its reserves, but in late 2022, the company replaced these investments with US Treasury bills.
Additionally, reserve reports are published on a quarterly basis on their official webpage. According to this information, Tether holds over 84% of its reserves in cash, cash equivalents and short-term deposits. Also, independent auditors' reports on the reserves are prepared by BDO Italia, an independent third-party accounting firm.