What is Tether? (USDT)
The Beginner’s Guide
The creator of the first and most widely used stablecoin, Tether Limited is a company operating a platform that issues blockchain-based assets linked to the price of government monies.
Today, Tether supports four stablecoins: the U.S. dollar (USDT), the Chinese Yuan (CNHT) and the Euro (EURT), as well as a stablecoin backed by 1 oz. of gold (XAUT). The Tether price attempts to maintain a value peg to an underlying asset.
First launching with USDT in 2014, the company’s idea was to make government monies more compatible with newer crypto assets, which traded 24/7 on an active global market.
Each USDT token is redeemable for a corresponding U.S. dollar held under custody by Tether Limited. The total value of all USDT is said to be equal to the reserves held by the firm.
Once a USDT is newly minted and issued, it can be transferred, stored and spent by a variety of businesses (exchanges, wallets, financial services) and individual traders looking to avoid the sometimes extreme volatility of the cryptocurrency markets.
Today, stablecoins are an emerging class of crypto assets that are beginning to find use cases beyond the world of trading, including in sectors like traditional cross-border payments.
As of 2020, USDT remains the largest and most widely used stablecoin.
However, the concept has been embraced by the world’s largest companies. For example, Facebook announced in 2019 that it was seeking to launch its own stablecoin, named Libra.
Who created Tether?
The origins of Tether date back to the early 2010s, when technologists first began to theorize that Bitcoins might be modified so they could represent new kinds of assets.
As it so happened, two groups began to work on the idea that the Bitcoin blockchain could be a platform used for issuing cash – a startup called Realcoin and the cryptocurrency exchange Bitfinex.
Eventually, the two projects would merge efforts, resulting in the formation of Tether Limited.
Today, the company allows users to store and transfer Tether currencies and helps integrate Tether assets for trading on major exchanges like Kraken.
How does Tether work?
Tether Limited accepts cash deposits and withdrawals on behalf of clients, and is responsible for minting and destroying Tether tokens in accordance with reserves they administer.
Tether on Bitcoin
Tether was originally launched and issued on the Bitcoin blockchain via the Omni Layer protocol, a platform used for creating and trading digital assets on top of Bitcoin.
This technology enables the minting and burning of Tether tokens based on the amount under custody. The circulation of Tethers can also be tracked and reported via the protocol.
Tether’s ledger is stored on the Bitcoin blockchain thanks to Omni, and the Omni Explorer allows users to view their verified transactions there. As of 2020, Tethers are also available as assets on Liquid, a Bitcoin sidechain.
Tether on Other Blockchains
Tether is now available on other blockchains, including Ethereum (ETH), Tron (TRX) and EOSIO (EOS), which allow for the creation of new assets natively on their blockchains.
To date, the largest market for USDT is on Ethereum.
Why does Tether have value?
Stablecoins are valuable because they offer traders a powerful tool for avoiding the sometimes extreme volatility of the cryptocurrency markets.
For example, by moving value to USDT, a trader might reduce their risk of exposure to a sudden drop in the price of cryptocurrencies. Having USDT (as opposed to the U.S. dollar) also removes transaction costs and delays that impair trade execution within the crypto market.
Exchanges have likewise found Tether to be a powerful tool allowing them to increase their number of offered trading pairs, while helping facilitate activity in geographies where cash trading may not be available.
However, traders should note that Tether’s value has sometimes fluctuated above and below its desired peg. For example, at times, the price has been impacted by confidence as to whether or not Tethers were fully backed by assets in custody at Tether Limited.
Further, traders will want to be aware that they will need to complete know-your-customer requirements enforced by Tether Limited to issue and redeem Tether assets.
Why use Tether?
Users may be interested in buying Tether because it offers the efficiency and transparency benefits of cryptocurrency while offering protection from price volatility.
Kraken users can quickly transfer USDT to their accounts and exchange USDT for other cryptocurrencies.
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