What Is Tether (USDT) and Why Should You Invest in It

If you want to know what Tether is and what its place in the crypto ecosystem is, we’ve got you covered.

Tether is one of the most popular stablecoins in the crypto world. Its goal is to maintain price stability by tying its value to reserve assets, like the US dollar, the Chinese yuan, the euro, the Mexican peso, and gold. Many traders use Tether crypto tokens to convert their digital assets from fiat to crypto and vice versa.

With that in mind, we created a guide to convey all the important information — let’s get started!

What Is Tether?

Tether is a digital currency whose price is linked to the value of fiat currencies in a 1:1 ratio. In other words, if Tether is pegged to the US dollar, 1 USDT will be worth $1.

So, is USDT a stablecoin? Yes, and as such, it acts as a bridge between fiat and digital currencies. On that note, Tether’s goal is to provide trading between cryptocurrencies and fiat while maintaining price stability.

Tether’s native token is called USDT. What does USDT stand for? USDT is a shortened form of the United States Dollar Tether. What is USDT used for? Investors use USDT to trade cryptocurrencies or to swap digital assets with crypto assets and vice versa. It can also be used as a payment method for on-chan and off-chain services.

Tether has a circulating supply of 90.8 billion tokens and its coins can be bought on all prominent crypto exchanges. However, it cannot be used for staking and yield farming. In addition to USDT, Tether issues tokens that are pegged to the euro, the Chinese yuan, the Mexican peso, and gold.

Tether doesn’t have its native blockchain. Instead, its tokens are hosted on Ethereum, Polygon, Tron, Solana, Avalanche, and Algorand.

How Does Tether Work?

The Tether stablecoin is backed by the company’s reserves, which include a mix of fiat currencies, gold, and other assets obtained through loans. Tether’s tokens are “authorized but not issued.” This means that they’ll be kept in the treasury until someone orders them.

Tether uses a proof of reserve consensus mechanism that’s made of three layers — the button layer, the Omni layer, and the Tether Limited layer.

The first layer is the basic layer. Its task is to run the consensus algorithm. The job of the Omni layer is to create and burn USDT tokens and to keep track of those in circulation.

The goal of the third layer or Tether Limited layer is to manage crypto wallets and fiat deposits and withdrawals from Tether’s reserve — when someone deposits fiat, the Tether Limited layer will convert it into Tether coins and vice versa.

Tether History

The idea of creating Tether was inspired by a whitepaper published by J.R. Willett in 2012. In his whitepaper, Willet talked about building digital currencies over the Bitcoin blockchain. That’s how Mastercoin or Omni Foundation was created. The protocol of this cryptocurrency served as the basis for the creation of Tether.

That said, Tether Limited was created in 2014 by Brock Pierce, Craig Sellars, and Reeve Collins. In the beginning, their project was called RealCoin, until they decided to rename it to Tether. This digital currency was based on Bitcoin’s architecture — it used the same protocol layer as BTC. Tether was also one of the first projects to use fiat as collateral.

In 2015, Tether was bought by iFinex, who is also the owner of the Bitfinex crypto exchange. Thus, Bitfinex became the first platform to include USDT in its order book.

At the time of writing, Tether is the largest stablecoin and the third largest cryptocurrency on the crypto market, right after BTC and ETH.

How to Use Tether

Now that you know what a Tether coin is and how it works, here’s how you can use it. 

You can use Tether as a payment method on online stores or as a means of exchange on crypto exchanges. On that note, in the DeFi sector, USDT is used for lending and borrowing. However, people can also use Tether for online betting, international payments, and remittances.

To be able to use USDT, you first have to buy it. To do this, create an account on a crypto exchange of your choice and choose your payment method. You can also use the best P2P crypto exchange services. After you buy USDT, you need to store it in your crypto wallet.

If you want to change fiat to USDT, you have to deposit the amount you want into Tether’s reserve. After that, you’ll get the same amount back just converted to USDT.

Is USDT Safe?

Tether is considered to be a safe stablecoin. Namely, all its tokens are tied to fiat and backed by its reserves. However, like other digital currencies, Tether is not immune to cyber-attacks. In fact, its treasury was hacked in 2017.

Furthermore, Tether CEOs have not always been transparent about the exact number of USDT tokens in circulation. The situation is different today as Tether issues daily reports on its reserves. They also perform regular audits.

Is Tether a Good Investment?

Tether is not the best long-term investment since it’s a stablecoin. The goal of stablecoins is not to grow in value over time, but to keep their price stable. This means that holding USDT will not bring significant returns to investors. On top of that, USDT is not intended for staking and yield farming, i.e., it doesn’t generate passive income.

As mentioned before, Tether’s treasury is sustained by a mixture of fiat, loans, bonds, gold, and other investments. Although USDT is pegged to the US dollar, its holding cannot be equated with holding the US dollar. Namely, if there’s a large demand for USDT, there is a possibility that Tether’s treasury won’t have enough tokens for payment.

On the other hand, Tether is a good choice for investors who want to diversify their portfolios. It can also be useful to crypto traders. How so? Unlike other cryptocurrencies, Tether is not subject to price fluctuations. This makes it more than suitable for crypto trading.

Conclusion

So, what is Tether and how can it be useful to you? Tether is one of the first and most popular stablecoin on the crypto market, which is why it gained great popularity. Its role is to build a link between fiat currencies and cryptocurrencies. Its native token, USDT, is tied to the US dollar in a 1:1 ratio. This means that its value will always be equal to the price of the dollar.

Tether can be used to conduct payments and exchange cryptocurrencies. Although this stablecoin is not intended for long-term investments, traders can use it to diversify their portfolios.

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