Tether (USDT) is a stablecoin pegged to the U.S. dollar, offering a stable alternative in the volatile world of cryptocurrencies. As of March 2024, it is the third-largest cryptocurrency by market capitalization, following Bitcoin and Ethereum, and the largest stablecoin with a market cap of nearly $99 billion.
Key Takeaways
- USDT is a stablecoin pegged to the U.S. dollar.
- It offers a way to invest in cryptocurrency while avoiding extreme volatility.
- Tether can be purchased through various crypto exchanges like Kraken and Coinbase.
Understanding Tether (USDT)
USDT, or Tether, is a type of cryptocurrency known as a stablecoin. Unlike other cryptocurrencies, stablecoins aim to avoid extreme volatility by tying their values to traditional currencies like the U.S. dollar. Tether was initially launched as RealCoin in July 2014 and rebranded as Tether (USDT) in November 2014. It supports multiple blockchain protocols, including Bitcoin’s Omni and Liquid, Ethereum, Avalanche, and others.
Tether also issues tokens pegged to other currencies like the euro, offshore Chinese yuan, Mexican peso, and gold, although these have a much smaller market cap compared to USDT.
How a Currency is Pegged
A pegged currency is backed by reserves, often made up of the pegged currency itself. This mechanism protects the currency from extreme fluctuations in value. For instance, several fiat currencies, including those of Panama and Saudi Arabia, are pegged to the U.S. dollar. The same principle applies to pegged cryptocurrencies like Tether.
Tether’s Transparency
Tether updates its reserve holdings daily on its website. As of March 3, 2024, Tether reported assets of $99.45 billion for USDT. The reserves include:
- 84.58% in cash, cash equivalents, short-term deposits, and commercial paper
- 76.87% of this in U.S. Treasury bills
- 0.05% in corporate bonds
- 3.62% in precious metals
- 2.91% in bitcoin
- 4.95% in secured loans to unaffiliated entities
- 3.89% in other investments
While Tether claims to back every USDT with an equivalent amount of currency, the actual reserves show a more complex picture. However, Tether has generally honored its 1-to-1 commitment.
Stabilization
Stablecoins like Tether are used as a medium of exchange, similar to conventional money. They have made it easier to speculate in cryptocurrency markets and are also used as collateral in decentralized finance (DeFi) lending and staking protocols.
Tether History
Tether has faced several challenges and controversies over the years. In November 2017, it reported the theft of $31 million in USDT tokens and implemented a hard fork to enhance security. In April 2019, the New York Attorney General obtained a court order against Tether and its parent company iFinex for borrowing $700 million from Tether’s reserves.
In February 2021, Tether and BitFinex settled the case by paying an $18.5 million fine and agreeing to furnish information about its reserves. In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) fined Tether $41 million for claims that its stablecoin was fully backed by U.S. dollars.
In May 2022, Tether’s price briefly fell to $0.96 following the TerraUSD (UST) peg loss but quickly rebounded. In 2023, Tether expanded into artificial intelligence by acquiring Northern Data Group and appointed Paolo Ardoino as its new CEO.
How Does USDT Differ from Other Cryptocurrencies?
USDT is a pegged cryptocurrency, meaning its value is only as volatile as the U.S. dollar. Other stablecoins include USD Coin (USDC), Binance USD (BUSD), and Dai (DAI). Tether allows investors to move money between cryptocurrency markets and the traditional financial system without waiting out steep declines in trading values.
How Can I Buy USDT?
Tether tokens can be bought and sold on various cryptocurrency exchanges, including Binance, CoinSpot, Bitfinex, and Kraken. Some online brokerages also offer cryptocurrencies.
Is Tether the Biggest Stablecoin?
Yes, Tether is the first and best-known stablecoin in the crypto world, with a market capitalization of nearly $99 billion as of March 2024.
The Bottom Line
Tether is a cryptocurrency that maintains a value peg to an underlying currency like the U.S. dollar. It is primarily used to convert cryptocurrencies to fiat to prevent slippage. However, there are times when it isn’t exactly pegged to the fiat currency it tracks, but it generally maintains its value well.
Sources
- Tether (USDT): Meaning and Uses for Tethering Crypto, Investopedia.
