What is a Tether token?
Tether tokens are digital stablecoin assets that are pegged to real-world currencies on a 1:1 basis. This is meant to reduce the volatility and, according to Tether, make their tokens a safer, more stable form of currency for individual traders and businesses, like crypto exchanges, wallets, and payment processors, to move value across markets. Tether tokens can also be used as a transaction currency on some platforms.
Tether tokens can be used as digital currency on many leading blockchains, including but not limited to: Algorand, Avalanche, Bitcoin Cash’s Simple Ledger Protocol (SLP), Ethereum, EOS, Liquid Network, Omni, Polygon, Tezos, Tron, Solana and Statemine.
How does Tether work?
Tether tokens are pegged to a fiat currency at a 1-to-1 ratio, meaning that, in theory, 1 token equals 1 unit of that currency. A user can exchange fiat currency for Tether tokens by depositing the desired amount into Tether’s reserve and receiving the equivalent in Tether (USDT). The peg is maintained by keeping a sum of reserves equal in value to the USD as it is to USDT in circulation.
Controversy surrounding Tether’s reserve claims
Although Tether now claims that each of its tokens is 100% backed by their reserves, which includes traditional currencies, cash equivalents and “may include other assets and receivables from loans made by Tether to third parties”, at one point there were several controversies around Tether’s lack of transparency on what exactly was included in those reserves and their business practices in general. Regulators scrutinized Tether’s claims that their tokens are fully backed by dollar reserves, and although Tether seems to be addressing these issues with its ‘Transparency’ page, where they maintain a daily record of current total assets and their detailed breakdown of their reserves, some doubts remain.
