TL;DR - SUMMARY
Tether (USDT) is one of the most popular stablecoins out there. It was designed to maintain a 1 to 1 value with the US dollar. The currency exists on many different blockchains, and has seen increased trading volumes and improved liquidity in recent years.
Like other stablecoins, USDT is useful for cryptocurrency trading as it allows traders to avoid the market volatility common in BTC and other crypto assets. The use of stablecoins also eliminates the extra costs and delays of conversions between crypto and fiat currencies.
Introduction
Tether is a key element of the cryptocurrency ecosystem. As of December 2020, Tether is positioned as the fourth largest cryptocurrency in the world, with a market capitalization of almost $20 billion - behind only Bitcoin, Ethereum and XRP. Likewise, it often leads the ranking as the currency with the highest daily trading volume, even surpassing Bitcoin.
But what is Tether and how can it be useful to you?
What is Tether (USDT)?
Tether (USDT) would be the world's first stablecoin (a cryptocurrency that emulates the value of a fiat currency). It was originally going to be launched in 2014 under the name âRealcoin,â by Bitcoin investor Brock Pierce, entrepreneur Reeve Collins, and software developer Craig Sellers.
USDT would initially be issued in the bitcoin protocol through Omni Layer, but would later also migrate to other blockchains. In fact, as you can see below in the chart, most of its monetary mass is in Ethereum in the form of ERC-20 tokens. It is also issued on a few other blockchains, including TRON, EOS, Algorand, Solana, and OMG Network.
Tether has experienced both successes and controversies â as have most of the world's leading cryptocurrencies.
Especially in its early days, the price of USDT would be somewhat volatile, at one point even reaching $1.2. However, the coin would experience much less volatility since the beginning of 2019. This is likely due to a steady increase in its trading volume and the general progress of the cryptocurrency markets.
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How does Tether (USDT) work?
The usefulness of stablecoins lies in their relative stability - unlike what happens with more traditional crypto assets. As a stablecoin, Tether's appeal lies in its tethering or pegging to a fiat currency. USDT was claimed to have originally been pegged to the USD exactly, with $1 USD held for every USDT in circulation.
According to the original Tether whitepaper:
Each unit of tether put into circulation is backed 1 to 1 (i.e. one Tether USDT is one dollar) by the corresponding unit of fiat currency held in escrow by Hong Kong-based Tether Limited.
Although the original 1-to-1 Tether asset would be USD, it would eventually be transformed to include other real-world cash equivalents, assets, and accounts receivable as collateral.
As you can see below on the USDT/USD chart, the currency generally trades at a stable 1 to 1 exchange rate with the USD. However, significant market events can affect its price.
Why Tether (USDT) is important
Tether acts as a bridge between crypto and fiat currencies. Offering investors an easy way to access a "one-to-one" trade with the USD, without the innate volatility of other cryptocurrencies.
By providing this stability, investors can hold a digital asset similar to a fiat currency but with the ease of trading other currencies in the crypto markets. Tether's key features make it a popular currency, although it is not immune to risks either.
Key Features
1:1 ratio (USD to USDT)
Stability (as much as the USD can be considered stable)
Available on different blockchains
Different use cases compared to traditional cryptocurrencies
Tether (USDT) Use Cases
Quick access to market stability
If the price of Bitcoin or other crypto assets is falling rapidly, you can quickly switch to USDT instead of trying to cash out.
Easily move funds between exchanges
With Tether, you can move your funds between exchanges very quickly. This can also be useful for arbitrage trading with other currencies.
Trade on crypto-only exchanges
Some exchanges do not have facilities for fiat deposits and withdrawals, but do allow USDT trading. By getting Tether first, you can trade on these exchanges without worrying about market volatility by placing your main trading funds in BTC (or other cryptocurrencies).
Forex style trading
Since USDT is pegged to the USD, you can perform Forex-style trading by exchanging local (non-US) currencies for USDT when its value is high against the USD. You can then withdraw money to the local currency when the local currency goes down or exchange for other assets.
How to store Tether (USDT)
In addition to Binance and other cryptocurrency exchanges, you can store your USDT in several crypto wallets. These include web and mobile wallets (like Trust Wallet) or cold storage hardware wallets (like Ledger) through third-party software wallets.
Since USDT is issued on a variety of different blockchains, you need to make sure you transfer it to and from the same network.
For example, if you go to the Binance USDT withdrawal page, you will find five different network options to transfer to: Binance Chain (BEP2), Binance Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI), and Tron (TRC20). ).
USDT transfer network options on Binance.
So be careful. If you use the wrong network, you could lose your funds. For example, if you try to send Omni USDT to an ERC-20 USDT address, your transfer will most likely be lost.
Please note that as of December 2020, ERC-20 USDT is the only type supported by Ledger. This means that USDT running on the Bitcoin blockchains (Omni Layer) is not available to transfer to Ledger hardware wallets.
Other cryptocurrencies Tether
In addition to USDT, Tether also has other stablecoins:
EURT: a Tether coin pegged to the euro
CNHT: a Tether coin pegged to the Chinese Yuan
XAUT: a Tether coin pegged to physical gold
You can see how much of each coin is circulating on various blockchains on the Tether<0> transparency page.
In conclusion
Stablecoins introduced a lot of convenience to the world of cryptocurrency trading, as they reduce the need for traders to convert multiple times between fiat and crypto currencies. As such, USDT is a useful asset to have on hand for crypto trading.
While there have been several questions about the validity of the reserves, volumes in recent years indicate faith in Tether's value as a stablecoin. In addition to USDT, you can also choose to use other stablecoins, such as BUSD, USDC, TUSD, and PAX.
