Tether is easily the biggest stablecoin globally and, in terms of market cap, it’s the third-largest cryptocurrency in the world. In this article, let’s learn more about stablecoins and Tether’s somewhat rocky history.
- Tether is currently the third-largest cryptocurrency in the market, with a market capitalization of >$60 billion.
- Tether Limited claims that USDT is backed 1:1 by the US Dollar.
- Tether was launched in 2014 and was originally called “Realcoin.”
- Tether is an attractive proposition for users and traders because of its Acceptance, Utility, and Stability.
- Tether can be used as a hedge against fluctuations and for trading purposes.
- Tether is supported by Bitcoin, Ethereum, EOS, Algorand, OMG, and Tron.
What Is A Stablecoin?
Stablecoins were created as a way of tackling the constant fluctuations and volatility in the price of cryptocurrencies. They do this by tying the value of a cryptocurrency to stable assets, aka peg. These assets are usually fiat currencies because they tend to be more stable over a longer duration of time—the company or entity backing the Stablecoin stores the assets backing the cryptocurrency in reserve.
The entity may store $20 million in a traditional bank account to back 20 million Stablecoins. This is how a stablecoin and the asset are tied together, with the asset stored in reserve as collateral.
There is also another class of stablecoins that are tied to a basket of crypto assets and are widely prevalent in the world of DeFi (Decentralized Finance). Examples of these stablecoins include DAI and USDP.
What Is Tether?
Often referred to as the US Dollar token, Tether (USDT) is one of the oldest stablecoins, with each token pegged 1:1 to fiat currency reserves. Tether is constantly working to keep its value stable by utilizing various market mechanisms.
The creators of Tether wanted to create a stablecoin that offered transparency, stability, and low fees for its users. Because Tether is fiat-collateralized, it can be backed by several cryptocurrencies such as the USD, CAD, AUD, and the Yen. If a user deposits a Dollar into Tether’s account, Tether mints 1 USDT.
History Of Tether
Launched in 2014 as Realcoin, Tether was founded by Reeve Collins, Brock Pierce, and Craig Sellars. Sellars was a member of the Omni Foundation, which allowed Tether to be built on the Omni Protocol. At the beginning of 2015, Tether started trading on the Bitfinex exchange, with the volume of the stablecoin increasing significantly on the network. USD transactions moved through banks based in Taiwan and were then passed on to Wells Fargo.
In April 2017, Tether’s transfers were blocked by banks in the US, and speculation was rife about market manipulation thanks to the Paradise Paper leaks. The lack of transparency led many users to speculate whether Tether actually had reserves to back the USDT and that the stablecoin could ultimately collapse. The temporary suspension of withdrawals further fueled the fire. New York Attorney General Letitia James filed a lawsuit against Tether and Bitfinex, accusing the two of misappropriating funds.
Both Tether and Bitfinex agreed on a penalty of $18.5 million and settle with the New York Attorney General’s office. Since the settlement, Tether has gone from strength to strength, increasing its market capitalization and expanding to Polkadot. In May 2021, Tether revealed the breakdown of its reserves for the first time since 2014. Currently, Tether is the third-largest cryptocurrency in the market, with a market capitalization of >$62 billion.
How Does Tether (USDT) Work?
The Tether stablecoin is owned and maintained by a company called Tether Limited. Tether Limited claims that a Dollar in reserve backs each Tether. Every time a new token is created, the company also has to acquire a Dollar to back the coin.
Initially, Tether was issued only on the Bitcoin blockchain through the use of the Omni Layer protocol. However, today Tether can be issued on several supported chains such as Bitcoin, Ethereum, EOS, Algorand, OMG, and Tron blockchains.
Tether uses the Proof of Reserves to keep its value stable, which means that at any given point of time, the fiat that Tether holds in reserve will be equal to or more than the USDT in circulation. Users can verify this through Tether’s website. There was some controversy whether Tether does back its USDT with an equal amount of fiat at all times. However, Tether Limited claims that all project accounts are audited.
Benefits Of Tether
Tether has several features that make it an attractive proposition for users and traders alike.
- Acceptance – Tether is an extremely popular cryptocurrency and can be traded on several exchanges. Exchanges usually use Tether as a trading pair.
- Utility – Tether is backed by several international fiat currencies making Tether’s value intuitive. Tether is helpful for other traders who want to purchase cryptocurrencies.
- Stability – Since Tether is backed by fiat currency, traders and holders are shielded from the volatility that plagues the cryptocurrency markets. It gives traders access to cryptocurrencies without subjecting them to high losses due to volatility.
Use Cases Of Tether
- Exchanges – Crypto users go through extreme difficulty finding ways to convert fiat to crypto. They have to find a suitable exchange, then wait for all security protocols and transfers to clear. Crypto exchanges also have to integrate with banks, and sometimes these banks will not have the necessary APIs making transfers expensive. Tether solves this problem, with Tether Limited handling fiat and providing USDT. Exchanges can provide pairs and enable the movement of fiat across all networks.
- Individuals – Tether enables individuals to HODL a cryptocurrency that is pegged on a fixed value. This helps individuals avoid the hassle of withdrawing crypto assets from the volatility of a cryptocurrency like Bitcoin.
What is Tether: Conclusion
Tether has proven to be extremely useful to the crypto community, with investors able to buy USDT during bearish cycles and protect themselves from market volatility. Tether has maintained market confidence despite the criticism thrown its way and is firmly established as one of the most important coins in the market.