Stablecoins: What is Tether USDT?
History
Tether, generally referred to by its ticker USDT, is a cryptocurrency stablecoin introduced by Tether Limited Inc. in 2014. A stablecoin is a token that is valued 1:1 to a reference asset, usually a fiat currency. Tether is pegged to the US dollar, but is not associated with the government issued US dollar.
Tether has the highest trading volume of any cryptocurrency, accounting for 70% of the stablecoin market. In 2019, it surpassed bitcoin as the most traded cryptocurrency worldwide. Tether Limited is owned by iFinex, a company based in the British Virgin Islands that also runs the Bitfinex cryptocurrency exchange.
In 2012, J.R. Willett proposed building new cryptocurrencies on top of Bitcoin’s blockchain, leading to the creation of Mastercoin (later renamed the Omni Foundation). This project laid the foundation for Tether, with key figures like Brock Pierce and Craig Sellars playing major roles in both initiatives.
Originally named "Realcoin," Tether was launched in July 2014 by Pierce, Reeve Collins, and Sellars, using Bitcoin’s infrastructure to facilitate transactions without intermediaries. The project rebranded to "Tether" in November 2014, with Tether Holdings Limited incorporated in the British Virgin Islands. Despite its widespread use, Tether has never undergone an independent audit but they are taking steps to have one done.
What’s special about it
USDT is designed to stay pegged to the U.S. dollar, with Tether claiming that each issued token is backed by an equivalent amount of USD in its reserves. This stability makes USDT a popular choice in the highly volatile crypto market, where other cryptocurrencies can fluctuate dramatically in value.
By holding USDT, investors can protect their portfolios from market swings without converting to traditional currency. It also enables fast and cost-effective transactions across borders without relying on banks or financial intermediaries. When you anticipate market volatility, you can swap your tokens to stablecoins to preserve the value of your cryptocurrency without offramping. Stablecoins allow you to preserve the fiat value of your cryptocurrency without having to use a centralized exchange.
However, concerns have been raised about Tether’s transparency and whether its reserves truly back all issued USDT tokens. The lack of a full independent audit has fueled skepticism, and at times, USDT’s price has briefly dropped below its dollar peg.
How it’s used
Tether (USDT) operates on multiple blockchains, including Ethereum, Tron, Solana, and others, making it highly flexible and widely accessible. Instead of having its own blockchain, USDT functions as a second-layer token secured by the underlying blockchains’ networks. If you have USDT on Ethereum, to get it on another network you would have to bridge. This article explains what it means to bridge your tokens and our L2 for Beginners article explains more about layer 2 networks.
Tether combines traditional banking with blockchain technology. For every USDT issued, Tether claims to hold an equivalent amount in reserves. Users can obtain USDT by sending dollars to Tether, which then mints new tokens. When redeemed, Tether burns the tokens and returns the funds.
This makes it simple for many DeFi applications to use this token for swapping or lending. Some of the most popular protocols that users can interact with to utilize their USDT tokens are AAVE, Uniswap, Compound and many more. On AAVE and Compound, users can deposit their USDT to earn passive rewards and even use it as collateral to borrow other tokens. On Uniswap and other decentralized exchanges (DEXs), users can add their USDT with another token to a liquidity pool to earn trading fees and incentives.
You can buy, hold, and bridge Tether in the MEW Mobile app if you prefer using mobile, or by downloading the Enkrypt browser extension if you prefer using a web browser.
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