Cryptocurrencies keep making news as many reputable financial institutions and companies add Bitcoin to their balance sheets. Cryptocurrency stablecoins, which have less volatility, are also gaining attention from investors. The market capitalization of Tether (USDT) is the largest of all stablecoins. In the cryptocurrency ecosystem, Tether (USDT) is crucial. As of December 2020, Tether had a market capitalization of almost $20 billion, ranking it the world’s fourth-largest cryptocurrency after Bitcoin, Ethereum, and XRP. In some cases, its daily trading volume even surpasses Bitcoin’s.
Benefits of Tether
The U.S. Dollar Tether (USDT) is the oldest and most popular stablecoin; it’s crypto pegged to the dollar and connects fiat currency. Using USDT as a buffer for buying and selling other crypto is more efficient or less expensive. Since Tether is usually worth $1 and rarely fluctuates. Nevertheless, the company was under scrutiny in October of 2021 for not disclosing whether its reserves covered the total number of Tethers. It was fined for making false claims about the dollar-backed status of all Tethers.
However, its reserves can indeed cover all 78.2 billion Tether coins in circulation in 2022, which consists of cash, commercial paper, and other crypto. A dollar-backed cryptocurrency, Tether uses blockchain technology.
It means that financial institutions hold actual dollar reserves that can be used as collateral. The dollar is fully backed by a stablecoin when supported one-to-one by the dollar. In contrast to famous cryptocurrency counterparts like Bitcoin and Ethereum, stablecoins will usually have stable prices.
What is Tether (USDT)?
The Tether coin belongs to a breed of cryptocurrencies known as stablecoins, which strive to maintain cryptocurrency valuations at a constant level rather than fluctuating like other popular cryptocurrencies like Bitcoin or Ethereum. As a result, it could be used as an alternative to speculative investments and as a medium of exchange and storage of value.
Tether primarily belongs to the stablecoin category backed by fiat. The fiat currencies that support the cryptocoins in circulation are the U.S. dollar, euro, and yen. Additionally, crypto-collateralized stablecoins utilize cryptocurrency reserves as collateral, and non-collateralized stablecoins do not use cryptocurrency reserves. Stablecoins without collateral operate similarly to a reserve bank by maintaining the required token supply according to the economic condition.
Tether was explicitly designed to provide users with stability, transparency, and minimal transaction fees on their transactions between fiat and cryptocurrencies. Pegged to the U.S. dollar, its value maintains a one-to-one ratio. The company does not guarantee that Tethers can be redeemed or exchanged for real money, meaning that Tether cannot be exchanged for U.S. dollars. A global source of cryptocurrency market data, most bitcoin traded for fiat or stablecoin is converted into Tether. In February 2021, USDT was utilized in 57% of bitcoin trading in February 2021. Tether is famous for many reasons.
Who Created Tether (USDT)?
An entrepreneur named J.R. Willet developed a concept for a cryptocurrency to live on a layer separate from the Bitcoin chain. At first, a technology precursor to Tether was this secondary layer, called Mastercoin. The founding members of Tether Limited, formerly known as Real coin, were Brock Pierce, Reeve Collins, and Craig Sellars. As an original launch, Tether used the Omni Layer protocol, which created and traded digital assets and supported minting and burning of Tether coins on top of the Bitcoin blockchain. By using Omni, Tether is also stored on the Bitcoin blockchain. Currently, Tether exists as an ERC-20 coin on several blockchains, including Ethereum, where it has migrated.
Features of Tether (USDT)
USDT has the main characteristic of always being denominated in U.S. dollars. Because it has a constant value, it is a suitable medium for storing and transferring information. Depending on the market’s supply and demand, Bitcoin or Ethereum, two popular cryptocurrencies, may have a different value. Unlike other cryptocurrencies, USDT is always valued at a dollar.
In addition to its currency, Tether claims to own assets equal to the market value of its currency. Dollars in cash or highly liquid investments back every USDT in circulation. A rope can be an excellent replacement for regular USD if you trust its Cayman Island accountants, including international remittances and crypto trading, without converting it into dollars. Before you go all-in on USDT for your banking needs, you must read the controversy section below about Tether’s assets and motives.
How Does Tether (USDT) Work?
Tokens on the Tether network are called Tether. The USDT symbol is used for trading Tether. Unlike other types of cryptocurrencies, such as Bitcoin, Ethereum, Solana, Binance Coin, etc., the value of Tether is relatively stable. Tether also supports three other stable coins: EURT, a stable coin based on the euro; CNHT, a stable currency based on the Chinese Yuan; and XAUT, a stable coin backed by an ounce of gold.
Due to the stability of USDT’s peg to a traditional fiat currency like the dollar, USDT crypto can function more as a source of value and a tool for trade instead of a speculative instrument. Moreover, Tether’s 1:1 relationship with the dollar allows it to serve as a bridge between cryptocurrencies and fiat currencies. The relative stability of fiat currency is coupled with the operations of a cryptocurrency, which makes crypto trading more efficient and more affordable. Tether began as a cryptocurrency on the Bitcoin blockchain, but it has since migrated to other platforms, including Ethereum, Tron, EOS, Algorand, etc.
Cryptocurrency assets such as Tether are the most widely accepted and traded. Tether has an estimated 24-hour trading volume of over $101 billion, according to CoinGecko. Its 24-hour trading volume is only $42 billion, putting it in second place. According to the company, Tether’s widespread market penetration and reach result from its claim that it is backed 1:1 by the dollar. After a lengthy legal dispute with Bitfinex and Tether, this claim was challenged by the New York Attorney General’s Office.
Bitfinex and Tether will cease all trading activities in New York in February 2021, according to the New York Attorney General. Both firms have also agreed to stop operating in the state in addition to paying fines. The Attorney General said Bitfinex and Tether hid massive losses to protect their bottom lines and survive. He said Tether’s claim that it constantly had USD backing at all times is untrue.
The company was required to provide regular reports on its operations, including the number of funds it holds as reserves, as part of the settlement. A first report published in May of 2021 showed that 76 percent of Tether’s accounts were held in cash or cash equivalents, while 29 percent were born in bonds, secured loans, and other investments, including bitcoin. Less than 3% of Tether’s reserves were held in cash; commercial paper accounted for 65% of the 76%, and fiduciary deposits accounted for 25%.
According to Tether’s general counsel, Stuart Hoegner, focusing on these reserves alone is “misleading.”. In his words, readers must not confuse the lack of liquidity with the lack of ‘actual’ cash.
Is Tether a Good Investment?
Tether and other stable coins have made it easy for cryptocurrency holders to exchange their cryptocurrency for Tether. However, trading an existing cryptocurrency for cash would take days and result in transaction fees. Exchange platforms benefit from this by creating liquidity, investors have no-cost exit strategies, and portfolios become more flexible and stable.
Also, Tether can be transferred globally faster and for a lower fee than conventional bank transfers. Tether is a perfect alternative to Bitcoin and Ethereum, which are highly volatile, and wouldn’t be appropriate for purchases and daily transactions.
The reasons mentioned above and more make Tether an appealing investment option. Because Tether is pegged to the U.S. dollar, it may not provide the kind of growth you seek in a long-term investment. In contrast, there are lending platforms, exchanges, and wallets where you can store USDT for a high-interest rate.
Stablecoins like Tether offer benefits that typical cryptocurrencies like Bitcoin and Litecoin do not.
Tether is not volatile like Bitcoin or other altcoins. Demand does not affect a coin’s value, so the deal doesn’t change. For most Tether stablecoins, the price is equal to one dollar.
Several blockchain networks support Tether. As a result, traders can choose the network to send and receive Tether.
The benefits of using Tether are almost identical to those of cryptocurrencies. The fees for transactions are competitive, and it is safe to use. USDT is also well-suited for various scenarios. For instance, some traders use Tether to protect themselves from the price volatility associated with Bitcoin and several other altcoins. By converting the assets into USDT, a trader can stabilize the price of the assets instead of cashing them out.
You can also use USDT to purchase cryptocurrencies on exchanges that do not accept cash payments. The user does not need to rely on cash but instead can purchase USDT tokens and do crypto-trading with them. Furthermore, we should point out that Tether charges low transaction fees when converting the currency to fiat.
As a result of these factors, Tether (USDT) makes a more suitable arbitrage asset. Briefly, Tether acts as a medium of exchange between cryptocurrencies and fiat currency.
Since their value is pegged to another asset, in the case of USDT, the U.S. dollar, stable coins do not generally present an attractive investment opportunity. Due to issuer default risk, they are not entirely risk-free, but they are not as volatile as other crypto assets.
Yet some investors who live in countries where interest rates are negative view Tether +0% and other coins like it as an effective means of protecting large amounts of cash reserves against bank charges.
Cryptocurrency investors like those who invest in Bitcoin and Ether have also used Tether to get in and out. Because of this, giant jumps in newly minted USDT are often seen as an indication of upcoming buyer interest. In periods of market volatility, USDT creation may also increase as investors sell cryptocurrency such as Bitcoin for the stablecoin. It leads to a surge in demand from exchanges that must top-up their stable coin supply.
Investing in Tether: Things to Consider
Considering its history and outlook, how would you feel about investing in Tether on any significant cryptocurrency exchanges? Despite the issues Tether has faced, it has been a very stable cryptocurrency that remains so despite having got through most of them unharmed – at least thus far. Although several competitors have popped up since Tether was created, it is still the most widely used stable coin for trading, loans, and interest-bearing purposes. Despite its problems with transparency, Tether is still very important in the cryptocurrency world and could be seen as one of the more risky cryptocurrencies.
Tether is available on almost every major cryptocurrency exchange and lending platform. Tether is typically stored on platforms that charge interest ranging from 6% to 12%. As a result of its high demand in cryptocurrency lending and trading, Tether earns more interest than other popular stable coins like GUSD, USDC, and DAI. The Tether may be offered at a higher interest rate by KuCoin, a cryptocurrency-based peer-to-peer lending platform.
Compared to GUSD, USDC, Bitcoin, and Ethereum, it’s the highest interest rate. Tax implications should be understood before investing in cryptocurrencies. It is possible to be taxed on interest or gains on cryptocurrencies.
How Can I Buy Tether (USDT)?
Several major crypto exchanges, as well as P2P exchanges, offer USDT trading. It is how.
- Sign Up for a Cryptocurrency Exchange
Most exchanges carry USDT, but you should ensure the conversation has the cryptocurrency you wish to buy. Set up a bank account or wire transfer to fund the account. It is sometimes possible that cryptocurrency exchanges don’t accept fiat currencies like the U.S. dollar. To buy and sell USDT, you might have to purchase another crypto, such as BTC or ETH, when buying USDT.
- Set Up a Crypto Wallet
To store and trade different coins, you will need a crypto wallet. A custodial wallet, provided by some exchanges, has pros and cons, but some businesses offer this option. Many investors prefer to use a software or hardware wallet (sometimes hot and cold wallets).
For your Tether to be stored in a crypto wallet, make sure the wallet supports USDT.
- Trade Tether
Even though it exists on more than one blockchain, Tether crypto is tricky due to its existence on multiple chains. That’s why you should trade on the identical blockchain. It would help if you did not buy Tether as an ERC-20 token on the Ethereum blockchain, as transferring it to the Omni blockchain could lose funds.
How to Sell Tether (USDT)
If you plan to sell it for dollars, you’ll need to convert your Tether into another crypto (e.g., BTC or ETH). The steps are as follows.
- Decide What to Trade
It might be a little different if you want to sell USDT for dollars instead of another crypto, like ETH. You may also have to complete a KYC identification process on some exchanges if they don’t allow USDT to USD direct trades.
- Find the Best Price
USDT possesses a relatively exact value since it is a stable coin. Likely, you won’t see many price differentials, regardless of whether you’re trading ETH, BTC, dollars, or another type of currency.
- Complete Your Trade
Whenever you sell USDT for another type of cryptocurrency, you can transfer that crypto to your wallet. You can cash out the crypto by selling it for dollars.
- Keep Taxes in Mind
You’ll have to pay taxes on your gains when you sell crypto, just like any other investment. Selling Tether could have tax implications, and you might want to consult a professional if necessary.
How can Tether be Used?
You can easily purchase any other cryptocurrency with Tether at many crypto exchanges. Its purpose is to enable traders and investors to hold market positions while maintaining a stable store of value. Stock exchanges themselves often have it as well. It is common for token trading pairs to be denominated in fiat currency, which is better understood by the general public. Because many exchanges cannot open bank accounts in fiat currency, they have resorted to holding their funds in Tether tokens.
The introduction of stablecoins has brought a lot of convenience to the crypto trading world since they reduce the need to convert fiat currencies several times into crypto. Thus, USDT is a valuable asset for crypto traders. Tether’s value as a stablecoin has been proven time and time again despite various questions regarding the validity of the reserves. You can use stable coins other than USDT, however. The following currencies are also possible: BUSD, USDC, TUSD, and PAX.