In the modern world of cryptocurrency, a stablecoin has emerged as one of the primary traded assets: Tether (USDT). Pegged to the US dollar, Tether provides a straightforward exit strategy for risk/averse investors and traders looking to shield themselves from market volatility.
In this guide, we will take you through everything you need to know about Tether, including its origins, functionality, advantages, and disadvantages. If you’re considering investing in Tether, read on. This guide should help you to make well-informed decisions.
Tether is what’s known as a stablecoin. Launched in 2014, it is pegged to the US dollar. Today, USDT stands as the most widely used stablecoin in the cryptocurrency market, with a market capitalization of approximately $ 83 billion, as of September 2023.
As the name suggests, the primary feature of Tether (USDT) is its stability. It is directly linked to the dollar on a 1:1 basis. In other words, for every USDT token in circulation, an equivalent amount in US dollars is held in reserves.
This stability is sought after by investors aiming to avoid market volatility. Another aspect of USDT is its transparency. The company behind USDT, Tether Limited, regularly publishes audit reports to reassure the market and investors, further promoting widespread adoption.
USDT (Tether) was launched in 2014 by Brock Pierce, Reeve Collins, and Craig Sellars. Their goal was to create a new stablecoin directly tied to the US dollar, providing investors with a simple and reliable means to transact in cryptocurrencies.
Initially, USDT was built on top of the Bitcoin blockchain using the Omni Layer protocol. However, in 2017, Tether Limited began its evolution process, collaborating with other blockchains like Ethereum, Tron, and Algorand. These moves allowed for increased scalability and flexibility. Investors could then choose the blockchain to use based on their preferences and needs.
In just a few months, Tether gained popularity and became increasingly favored by investors. It offered an innovative way to conduct instant transactions without the volatility associated with other cryptocurrencies.
However, despite its advantages, USDT has faced criticism and controversy. Most notably, back in 2018 concerns arose around whether Tether Limited had sufficient reserves to back all circulating USDT tokens.
Since then, the group has implemented a regular audit system, with results accessible to the public. The result? This transparency did more to smooth over the worries about reserves. It helped Tether become one of the most widely used projects over the years. Its market capitalization is approximately $83 billion, and USDT is regularly among the top 3 most traded cryptocurrencies in the market. With the market’s continued growth, it’s easy to imagine its usage becoming even more significant in the coming years.
As mentioned earlier, Tether’s initial objective was to provide a simple, fast, and reliable means of conducting transactions in the cryptocurrency market. Being a stablecoin, Tether (USDT) is not subject to volatility; its value always remains the same. In essence, 1 USDT equals 1 USD.
It serves as an exchange medium like traditional fiat currencies and is used as a hedge against market fluctuations, particularly downward movements. Additionally, USDT has a wide range of applications. It can be used in the decentralized finance (DeFi) space as collateral for loans or as a stable asset in liquidity pools.
USDT is also used in the world of Web 3.0, particularly in the purchase of non-fungible tokens (NFTs). In summary, USDT serves both as a safe haven and a means to diversify investments.
Tether (USDT) maintains a 1:1 parity with the US dollar. As mentioned, this means that 1 USDT is equivalent to 1 US dollar. But how does this work? It’s quite simple and is achieved through a process known as “minting” and “burning” of USDT tokens.
When a buyer wishes to purchase USDT, they send US dollars to Tether Limited, the parent company responsible for managing Tether (USDT). Tether Limited then mints an equivalent quantity of USDT tokens and sends them to the user’s wallet. The received US dollars are held in reserve, helping to maintain the parity (“peg”).
The same thing works the other way around. That is, when a user wants to exchange their USDT for US dollars, they send their USDT tokens to Tether Limited, which then burns (or takes them out of circulation) the tokens before sending an equivalent amount in US dollars to the user’s bank account or wallet.
For all other purposes, it functions like any other cryptocurrency. As we will see later in this text, it can be bought or sold on numerous trading platforms. USDT is offered in several pairs, such as USDT/BTC or ETH, among others. In short, it’s a straightforward, fast, and efficient way to invest or hedge against price declines.
If you want to buy USDT but are unsure where or how to do it, several options allow you to exchange digital assets for Tether. Here we present three of the big ones:
Binance is one of the most well-known cryptocurrency exchanges globally, and it’s the most widely used one too. On Binance, you can easily and transparently buy or sell USDT. One of the significant advantages of this platform is its liquidity, so you won’t have to wait for hours for your trading order to execute.
Coinbase is the second-largest trading platform globally and is known for its user-friendly interface and robust security measures. You can buy USDT on Coinbase using a bank transfer or a credit/debit card. Besides its web app, you can also buy USDT on Coinbase through the mobile application.
Kraken is the third-largest trading platform globally. Like Coinbase or Binance, it offers the ability to buy and sell Tether (USDT). This can be done via a bank transfer or by depositing cryptocurrency, which you can then trade. Again, security and liquidity are prominent features.
So, which option should you choose? In our view, Binance remains the preferred trading platform. Binance offers a wide range of trading pairs and payment methods, making it easy for users to purchase USDT. Additionally, Binance enjoys a strong reputation in the cryptocurrency community and is known for providing reliable and secure services.
In four simple steps, you can buy USDT on Binance:
Please note that Tokize does not provide investment advice. This guide is purely explanatory, helping you understand how this ecosystem works and providing insights into what USDT is and how it can be used. Always conduct your research before investing in cryptocurrency, whether it’s a stablecoin or a more volatile asset. The risks of losses are real and significant.
In terms of price, there should be no surprises when it comes to Tether (USDT). USDT is expected to remain at a 1:1 parity with the US dollar. The token’s technical and social developments are closely tied to the entire cryptocurrency market and the stability of the US dollar.
At present, its lack of volatility is its main strength. Another advantage is transparency. After the criticisms in 2018, the group implemented an audit system to demonstrate the amount of reserves and thus reassure investors.
However, USDT does have several potential disadvantages. The first one, which is both its strength and weakness, is its parity. It is not an interesting currency if you intend to trade actively since the token’s value does not fluctuate at all. Another potential downside for USDT is the risk of regulatory control. As a stablecoin, USDT could be subject to regulatory oversight in the future, which could impact its adoption and use in the cryptocurrency market.
What we like
High stability
1:1 parity with the US dollar
Presence on all major trading platforms
What we don’t like
Reserves-related criticisms and concerns
Risk of regulatory control
So, what do we make of Tether? As a stablecoin with a 1:1 parity with the US dollar, Tether is one of the most purchased tokens worldwide, with a total market capitalization estimated at over $83 billion (in September 2023). Additionally, the efforts made in terms of transparency are highly appreciated.
Indeed, after the criticisms in 2018, the group implemented an audit system to prove the amount of reserves and reassure investors. One final point, unrelated to market dynamics but rather regulatory in nature, is the issue of regulation. Since USDT is backed by the dollar, the US administration might be tempted to establish new policies to regulate its use in the digital asset space.
Ultimately, USDT is a token that sees increasing use and is symbolic of the cryptocurrency market. It can be used in DeFi (decentralized finance), in Web 3.0, particularly in NFT purchases, or simply as a store of value in the face of what some consider to be an overly volatile market. Its functional scope really is broad!
However, once again, please exercise caution. The Tokize team does not offer investment advice. This analysis and comprehensive guide are designed to help you determine whether Tether is a project that suits your needs. Always conduct your own research before investing in cryptocurrencies. Risks of losses are high!
