Tether allows customers to make transactions with traditional currencies on the blockchain, eliminating the volatility and complexity often associated with digital currencies. As the first blockchain platform to bring traditional currencies to the digital world, Tether has made cross-border transactions on the blockchain accessible to everyone.
The platform is built on the Omni Layer, a layer on top of the Bitcoin blockchain that enables the creation of digital assets and smart contracts.
Tether tokens are issued and redeemed by Tether Limited, the company behind the Tether platform. Tether Limited holds US dollars in reserve, which it claims are used to back all Tether tokens in circulation.
What are Tether Tokens (USDT)?
Tether (USDT) was launched by the Tether company in 2014 as a stablecoin pegged to the US dollar.
Tether tokens are digital assets that can be easily transferred on the blockchain like other cryptocurrencies, but their value is linked 1:1 to real-world currencies. These tokens are known as stablecoins because their value is pegged to a fiat currency, providing a low-volatility option for traders, merchants, and funds when exiting market positions. Tether tokens are backed 1:1 with their corresponding fiat currency (e.g. 1 USDT = 1 USD) and fully supported by Tether's reserves.
Tether token (USDT) was created to provide a stable alternative to traditional cryptocurrencies, which are known for their high volatility. The idea behind Tether is that it can serve as a medium of exchange for other cryptocurrencies, allowing traders to avoid the fluctuations of the cryptocurrency market and instead trade with a stablecoin.
The use of Tether tokens has grown significantly since its creation, and it is now one of the most widely used stablecoins in the cryptocurrency market. Tether is used as a medium of exchange on several popular cryptocurrency exchanges, including Bitfinex and Binance. This has made Tether an important part of the cryptocurrency ecosystem, providing stability and reliability to investors and traders.
Tether Token Price
The fundamental aim of a stablecoin such as USDT is to consistently maintain a value of $1. To achieve this stability, every USDT is supported by reserves kept in the Tether Treasury. Despite this, USDT's value has seen some fluctuations throughout the years.
In July 2018, USDT reached its highest value of $1.32, while in March 2015 it hit its lowest point at $0.57. These changes in value are largely due to changes in demand for the token. When the cryptocurrency market is booming, demand for stablecoins such as Tether typically decreases.
Additionally, Tether's history of legal disputes has also impacted demand for the token. For example, when the New York Attorney General's office launched legal action against Tether, the value of USDT deviated from its dollar peg by 3%.
Despite these fluctuations, USDT's value has mostly remained close to $1, with minor deviations of $0.01 or $0.02 at times. However, these deviations are usually temporary.
The maximum supply for USDT is not predetermined as new coins are issued based on user demand and the reserves held by Tether.
Why is USDT Burned?
USDT can be burned to lower the quantity of tokens in circulation on a specific blockchain. This can occur when a customer exchanges their USDT for fiat currency. The redeemed tokens may then be kept by Tether's treasury, effectively removing them from circulation and not affecting the total market capitalization. This allows for future issuance only when new market demand arises.
Pros of USDT
Tether (USDT) is one of the most popular stablecoins in the crypto market. It is often considered as a reliable option for those looking for a stable value in the crypto world. USDT has a history of maintaining its peg to the US dollar, which makes it a preferred choice among investors.
In terms of liquidity, USDT is considered to be highly liquid as it typically has the largest trading volume among all stablecoins. This makes it an attractive option for those who are looking to buy or sell cryptocurrencies quickly. Moreover, the stability of USDT is also a major factor that contributes to its high liquidity.
Compared to other cryptocurrencies such as bitcoin and altcoins, USDT is less volatile, making it a safer investment option. Its value generally hovers around $1, which makes it a less risky option compared to other cryptocurrencies that tend to experience large price swings.
USDT is also widely accessible and is available on almost all exchanges and all major blockchain networks. This makes it an easily accessible option for investors looking to trade cryptocurrencies.
Cons of USDT
Tether, despite being a widely used stablecoin, has been plagued with a lack of transparency regarding its business practices. To date, the company has not implemented a clear and open strategy, leading to questions about whether its US dollar reserves match the supply of its tokens.
In addition to this, Tether has been at the center of various accusations and lawsuits, which have negatively impacted its reputation. These controversies and legal issues may cause users to question the security and stability of the currency.
The Controversial History of Tether
Tether and its parent company BitFinex have faced numerous controversies and legal actions in recent years. In November 2017, Tether reported the theft of $31 million USDT tokens, which prompted a hard fork.
At that time, the company was already under scrutiny for questions about its reserve adequacy. Later investigations revealed difficulties in accessing banking services.
In April 2019, the New York Attorney General obtained a court order against Tether and BitFinex for violating New York law, finding that BitFinex had used at least $700 million from Tether's reserves to cover frozen funds from its Panamanian banking partner Crypto Capital Corp. in a money laundering investigation.
Tether and BitFinex settled the case in February 2021, agreeing to pay a $18.5 million fine, cease trading with New York residents or entities, and provide information on its reserves to the New York Attorney General's office for two years.
In October 2021, the U.S. Commodity Futures Trading Commission fined Tether $41 million "over claims that Tether stablecoin was fully backed by U.S. dollars." However, the CFTC found that Tether held sufficient fiat reserves to back USDT tokens for only 27.6% of the days from 2016 to 2018. BitFinex also agreed to pay a $1.5 million fine as part of the settlement.
In May 2022, Tether's price briefly dropped to $0.96 due to the decline in value of another stablecoin, TerraUSD. The price quickly recovered to over $0.99, and Tether confirmed it would continue honoring redemption requests at a 1-to-1 ratio with the U.S. dollar. Tether has also expanded into other markets, including Mexico (MXNT), Europe (EURT), and China (CNHT).
Stablecoins have become essential components in the crypto world, offering important functions for investors and speculators.
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Liquidity is the ability to sell or acquire an asset without significantly changing the market price. The term also indicates the ease with which an asset can be converted into...