What is Tether and is it a good investment?
Tether (USDT) is one of the most popular cryptocurrencies in the world. With over 70 billion tokens in circulation, Tether can be found on most crypto exchanges, and can be used on many crypto platforms.
But is Tether safe to use? Is it a good investment?
Keep reading to understand what Tether is, how to use it, and why it keeps making headlines in the U.S. and around the world.
What Is Tether (USDT)?
Tether is a type of cryptocurrency known as a stablecoin, which keeps its value pegged to a fiat currency. While there are four different versions of Tether (pegged to other currencies, such as gold, the Euro, and the Chinese Yuan Renminbi), the most popular version is USDT, which is pegged to the U.S. dollar.
Tether is a fiat-backed stablecoin, meaning that every Tether token in circulation is backed by an equal amount of U.S. dollars or dollar-equivalents. This means that the value of one Tether (USDT) token is worth $1.00 at any given time (although the value can fluctuate by fractions of a cent at times).
Tether was developed by the cryptocurrency exchange Bitfinex and is the native token of the tether network. Tether is blockchain agnostic, meaning it can be used on multiple networks, is found on most exchanges, and is used in many decentralized applications.
Tether has a market capitalization of over $70 billion as of February 2022, making it one of the largest cryptocurrencies on the market.
History of the Tether Cryptocurrency
According to The Wall Street Journal, Tether was originally launched as Real Coin in 2014, designed as a cryptocurrency to mirror the price of the U.S.dollar. The name was subsequently changed to Tether, and tokens were issued in partnership with crypto exchange Bitfinex. Tether is owned by Tether, Ltd., which is a private company that is owned by iFinex Inc., the parent company of Bitfinex.
Tether tokens were issued as more demand for the cryptocurrency arose, but the total Tether in circulation remained relatively flat during 2015 and 2016. As the Bitcoin market started to gain traction in 2017, more and more Tether tokens were issued to keep up with the demand and high volume of cryptocurrency trading.
ByJanuary 2017, there were about 10 million USDT in circulation. By the peak of the crypto bull run in 2018, there were over 2 billion Tether in circulation. This increase in tokens made Tether the go-to stablecoin for crypto traders, and it has continued growing.
Today, there are over 70 billion Tether tokens in circulation, and it is estimated that over 50% of Bitcoin purchases and sales are done with Tether, according to Kaiko Research. But while Tether remains the most popular stablecoin on the market, it is not without controversy.
Tether Hack 2017
In November 2017, the Tether network was hacked and over $30 million of Tether (USDT) was stolen. This hack was carried out by an unknown external party, transferring the tokens from the Tether treasury wallet to an unauthorized Bitcoin wallet.
Tether quickly responded by freezing the Tether wallet service, and then initiating a hard fork (a software update) to the Tether blockchain. This essentially froze the stolen Tether tokens and prevented them from being converted back to fiat currency.
Tether was in hot water again after failing to complete a third-party audit in 2018 to ensure it had adequate fiat reserves for every Tether token issued. Tether originally partnered with Friedman LLP to perform the audit, but later dissolved the relationship due to delays.
Shortly after, Tether was issued a subpoena by the U.S. Commodity Futures Trading Commission (CFTC), investigating whether Tether has enough reserves to back up its claims of being 100% fiat-backed.
Although Tether eventually revealed its breakdown of reserves in 2021 after a settlement with the New York Attorney General, this lack of transparency caused a huge stir in the cryptocurrency market, and continues to be a sticking point for U.S. regulators.
How Tether Differs From Bitcoin and Other Cryptocurrencies
Tether is different from most cryptocurrency because its value does not change. While Bitcoin, Ethereum, and other popular cryptocurrencies are actively traded, with prices that fluctuate day-to-day, Tether is a stablecoin whose value is pegged to the U.S. dollar and maintains a $1.00 value per token.
Stablecoins are designed to hold their value, making them less volatile than other cryptocurrencies, such as Bitcoin and Ethereum. This gives traders a place to park their cryptocurrency holdings without worrying about them losing value or fluctuating wildly.
While some stablecoins are not backed by any funds, others are backed by cryptocurrency reserves. Still others offer reserves in fiat currencies and other investments. The full value of all Tether holdings are backed by an equivalent amount of U.S. dollars and dollar-equivalents. This means that the total market capitalization of Tether (over $70 billion as of 2022) is backed by reserve holdings.
What is Tether Used For?
Tether is a stablecoin that is used in a variety of ways:
- To hold digital currency without worrying about volatile prices
- To trade for other cryptocurrencies, including Bitcoin
- To lend out to others for use, while earning interest
- To borrow money against in a collateralized loan
- To make digital purchases (such as NFTs)
Tether is one of the most common stablecoins, and can also be used in decentralized applications on many different blockchains.
Is Tether a Stablecoin?
Yes, Tether is a stablecoin and is fully-backed but fiat reserves. This means that for every Tether in circulation, there is the equivalent of $1.00 in its reserves.
Tether’s price is constantly pegged to the U.S. dollar, meaning that while it fluctuates slightly due to market conditions, 1 USDT token will always equal $1.00 to within fractions of a penny.
Should You Invest in Tether?
Tether is not like other cryptocurrencies, and is not necessarily an investment, but can be treated more like digital cash. Tether will not fluctuate in value like Bitcoin or other cryptocurrencies, so owning Tether is not going to build your wealth.
That being said, Tether is a way to keep your money on the blockchain, and can help you avoid costly trading and withdrawal fees of converting your crypto holdings to fiat currency. It can also help you park your crypto holdings without losing value, especially useful for active crypto traders.
In addition, depositing USDT into a crypto exchange or lending platform can earn you interest on your holdings, typically offering much more interest than a traditional bank account. Some companies offer up to 8% (or more) in yearly interest payments for lending your USDT. There are also decentralized platforms, such as Aave, that not only pay interest on depositing USDT, but allow you to borrow against the balance as well.
Overall, Tether should be treated as digital cash — a way to lock in the value of your cryptocurrency holdings to the value of the U.S. dollar. Tether makes it easy to trade, lend, and borrow against your cryptocurrency, and keeps your funds on the blockchain.
Where to Buy Tether
Tether can be purchased at most major crypto exchanges, as well as traded on decentralized exchanges. Centralized crypto exchanges such as Coinbase, Kraken, FTX, and Binance offer Tether and other stablecoins. Decentralized exchanges such as Uniswap, TraderJoeXYZ, and TerraSwap also allow users to purchase Tether using other cryptocurrency.
To purchase Tether on a centralized exchange, you can create an account, deposit fiat funds (such as U.S. dollars), and place an order.
Tether can be used on most blockchain networks, and in many decentralized applications as well.
Despite the controversy, Tether remains the most popular stablecoin in cryptocurrency today. With billions in daily volume, the ability to work across blockchains, and almost universal acceptance across crypto applications, Tether is a favorite among traders and crypto enthusiasts.
While Tether keeps its value pegged to the U.S. dollar, it’s price does fluctuate slightly (by fractions of a cent), so it is not an exact dollar-equivalent currency. Also it is backed by reserves, but less than 15% of those reserves are in actual cash.
Overall, Tether is going to remain a popular digital asset, but will likely also continue to be under scrutiny by lawmakers, especially in the U.S.