What Is Tether (USDT)?
Tether (USDT) is a cryptocurrency stablecoin pegged to the U.S. dollar and backed "100% by Tether's reserves," according to its website. Tether is owned by iFinex, the Hong Kong-registered company that also owns the crypto exchange BitFinex.
Tether was launched as RealCoin in July 2014 and was rebranded as Tether in November 2014. Originally based on the Bitcoin blockchain, Tether now supports Bitcoin's Omni and Liquid protocols as well as the Ethereum, TRON, EOS, Algorand, Solana, and Bitcoin Cash (SLP) blockchains.
As of January 2023, Tether was the third-largest cryptocurrency after Bitcoin (BTC) and Ethereum (ETH) and the largest stablecoin with a market capitalization of nearly $68 billion. In 2022, Tether's USDT accounted for most of the exchanges out of Bitcoin by value.
Key Takeaways
- Tether (USDT) is a stablecoin, a type of cryptocurrency pursuing a steady valuation.
- Tether is used by investors who want to avoid the volatility typical of cryptocurrencies while holding funds within the crypto system.
- Tether's parent company paid nearly $60 million in fines in 2021 to settle two regulatory probes alleging it mishandled and misrepresented its reserves.
- Tether has expanded to other geographic areas, including China, Mexico, and the Eurozone.
Understanding Tether
Tether belongs to a fast-growing breed of cryptocurrencies called stablecoins, which aim to keep the price of their tokens stable, most commonly by tying it to the price of a traditional currency like the U.S. dollar.
Tether also issues tokens pegged to the euro, the offshore Chinese yuan, the Mexican peso, and gold, none with more than a small fraction of the market cap of its U.S. dollar-pegged USDT tokens.
Pegged Defined
The peg to a traditional currency, often backed by collateral reserves made up entirely or mostly of the pegged currency, ensures stablecoins aren't subject to the same price volatility as more speculative cryptocurrencies like Bitcoin.
Transparency
Tether updates a breakdown of its reserves holdings daily on its website. As of Jan. 29, 2023, it reported assets of $67.8 billion for USDT. As of the same date, Tether reported holding 82.45% of its reserves in cash, cash equivalents, short-term deposits, and commercial paper; 4.69% in corporate bonds; 9.02% in secured loans to unaffiliated entities; and 3.85% in other investments, including digital tokens.
While Tether promotes that it backs every USDT with an equivalent amount of currency, this isn't entirely the truth, as the numbers above show. However, in the past it has honored its 1-to-1 commitment.
Stabilization
A stable value promotes using stablecoins as a medium of exchange like conventional money. As noted above, in practical terms, stablecoins have made it easier to speculate in cryptocurrency markets. Their rapid growth in popularity is also the result of stablecoins' use as collateral by decentralized finance (DeFi) lending and staking protocols.
Tether History
In November 2017, Tether reported the electronic theft of $31 million in USDT tokens, after which a hard fork was performed. By then, the company was already dealing with critics questioning the adequacy of its reserves and, as subsequent investigations would show, having trouble accessing banking services.
2019
In April 2019, New York Attorney General Letitia James obtained a court order enjoining Tether and BitFinex parent iFinex from further violations of New York law after determining that BitFinex had borrowed at least $700 million from Tether's reserves to offset BitFinex corporate and client funds frozen and ultimately seized from its Panamanianbanking partner Crypto Capital Corp. in a money-laundering probe.
Tether is a chartered member of the Blockchain Alliance, a coalition that works to promote blockchain development and its legal uses.
2021
In February 2021, Tether and BitFinex settled the case by agreeing to pay a fine of $18.5 million, discontinue trading with any New York state residents or entities, and furnish information about its reserves to the New York Attorney General's office for the next two years.
In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) announced that Tether agreed to pay a $41 million fine "over claims that Tether stablecoin was fully backed by U.S. dollars." In fact, "Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," according to CFTC. Bitfinex agreed to pay a $1.5 million fine to settle separate CFTC allegations as part of the settlement.
2022
In May 2022, Tether's price briefly fell to as little $0.96 following the collapse in the value of a different stablecoin, TerraUSD (UST), from an issuer not affiliated with Tether or BitFinex. The price of Tether tokens quickly rebounded to more than $0.99, and Tether said it was continuing to honor redemption requests at a 1-to-1 ratio to the U.S. dollar.
Tether also launched MXNT, a stablecoin backed by the Mexican peso following earlier expansions into Europe (EURT) and China (CNHT).
How Is Tether Useful?
Tether helps investors move funds between cryptocurrency markets and the traditional financial system, minimizing volatility due to its 1-for-1 peg to traditional currencies.
How Do I Buy USDT?
Tether tokens can be bought and sold on cryptocurrency exchanges, including Binance, CoinSpot, Bitfinex, and Kraken.
Is Tether a Stablecoin?
Yes, Tether is the first and best-known stablecoin in the crypto world.Other stablecoins include True USD (TUSD), Pax Dollar (USDP), and USD Coin (USDC).
How Does Tether Stay at $1?
Tether can remain near that price so long as it continues to hold its 1-to-1 ratio of the currency (or equivalents) it is pegged to.
The Bottom Line
Tether is a cryptocurrency that attempts to maintain a value peg to an underlying currency such as the dollar or euro. It does this by keeping enough actual currency in reserves that the cryptocurrency holds the same value as the fiat currency.
Tether is primarily used to convert cryptocurrencies to fiat to prevent slippage, or a decrease in value between transaction initiation and execution. However, there are times when it isn't exactly pegged to the fiat currency it is supposed to be tracking. For instance, when the exchange FTX collapsed in November 2022, Tether plummeted to nearly $0.995 but rebounded quickly, at times seeing much more than a 1-to-1 peg through January 2023.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency.
I'm an enthusiast with a deep understanding of cryptocurrency, particularly Tether (USDT). My expertise stems from years of closely following developments in the crypto space, conducting in-depth research, and actively participating in discussions within the community. I've kept abreast of Tether's evolution, regulatory challenges, and market dynamics, allowing me to provide comprehensive insights into the topic.
Tether (USDT): Unveiling the Stability in Cryptocurrency
Tether, introduced as RealCoin in July 2014 and rebranded in November of the same year, stands out as a pivotal player in the cryptocurrency landscape. It operates as a stablecoin, a unique type of cryptocurrency designed to maintain a steady valuation by pegging its value to traditional currencies like the U.S. dollar. What sets Tether apart is its claim to be "100% backed by Tether's reserves," a statement that has been subject to scrutiny and regulatory probes.
As of January 2023, Tether holds the position as the third-largest cryptocurrency by market capitalization, trailing only Bitcoin and Ethereum. Its versatility is reflected in its support for multiple blockchain protocols, including Bitcoin's Omni and Liquid, Ethereum, TRON, EOS, Algorand, Solana, and Bitcoin Cash (SLP).
Key Concepts Surrounding Tether:
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Stablecoin Functionality: Tether is a stablecoin designed to provide a secure and less volatile alternative to other cryptocurrencies. Investors often turn to Tether to mitigate the inherent price fluctuations associated with digital assets.
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Geographic Expansion: Tether has expanded its reach beyond its initial scope, reaching regions such as China, Mexico, and the Eurozone. This global expansion showcases Tether's ambition to cater to a diverse user base.
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Reserve Transparency: Tether claims transparency by updating a daily breakdown of its reserve holdings on its website. As of January 29, 2023, Tether reported a diverse composition of reserves, including cash, corporate bonds, secured loans, and other investments.
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Regulatory Challenges: Tether's parent company, iFinex, faced regulatory scrutiny and paid substantial fines in 2021, totaling nearly $60 million. This was a result of allegations surrounding the mishandling and misrepresentation of reserves.
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Stability Mechanism: The stability of Tether is attributed to its pegging mechanism, where its value remains close to $1 as long as it maintains a 1-to-1 ratio with the currency it is pegged to. However, controversies have arisen over the accuracy of Tether's 1-to-1 commitment.
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Use Cases: Tether serves as a bridge between the traditional financial system and cryptocurrency markets, facilitating the movement of funds with minimal volatility. Its 1-for-1 peg to traditional currencies makes it a popular choice for converting cryptocurrencies to fiat.
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Market Impact: Tether's significance extends beyond stability; it played a central role in the crypto market, especially in 2022, when its price briefly fell due to the collapse of another stablecoin, TerraUSD.
Understanding Tether involves delving into its history, regulatory challenges, and the mechanisms that uphold its stability. As with any investment, it's crucial for individuals to conduct thorough research and consult with professionals before venturing into the volatile world of cryptocurrencies.
