Tether, a popular stablecoin, has been a favorite among crypto enthusiasts for a decade as a way to leverage their trades. It is used by investors who want to avoid the volatility of the crypto market while still making use of the crypto ecosystem.

Why Was Tether USD (USDT) created?

Cryptocurrencies such as Bitcoin and Ethereum have a reputation for being highly volatile in terms of their value, making them unreliable as a payment method or store of value. For example, the value of Bitcoin can change by thousands of dollars in a single day. This makes it hard for merchants to accept it as payment since the value of the payment they receive could fluctuate greatly before they can convert it to a stable currency like US dollars.

As a result, stablecoins such as USDT were introduced, which are cryptocurrencies that are pegged to a stable currency. The value of USDT is tied to the assets it is pegged to, making it less volatile.

What is Tether USD (USDT)?

Tether USD (USDT) is the world’s first fiat-collateralized stablecoin. A stablecoin is a type of cryptocurrency designed to maintain a stable price over time. It is pegged to the value of fiat currencies like dollars or pounds.

Stablecoins like USDT are backed by the specific assets that they are pegged to. An organisation that issues out stablecoins usually sets up a reserve at a financial institution that holds the underlying asset, or fiat currency, that it is pegged to. For example, a stablecoin could issue 100 million coins with a fixed value of $1 and, therefore, have a reserve of $100 million.

Usecases of Tether USD (USDT)

Similarly to other stablecoins such as BUSD or USDC, the USDT stablecoin is used in trading to minimize price volatility on crypto exchanges. It allows traders and crypto investors to hold their money on an exchange without its value fluctuating.

Exchanges: USDT is used to move money between cryptocurrency exchanges to assist with arbitrage.

Payroll: The use of USDT stablecoin for payrolls could be extremely effective in times when remote work beyond borders is increasing. It will cost less time and money to process payrolls for businesses and employees won’t have to worry about experiencing problems with their banks.

Safe Haven Asset: Other cryptocurrencies, such as Bitcoin, are not stable stores of value as their prices are highly volatile. This can be highly unsettling for people who need to access their crypto assets regularly. As a safe haven asset, users don’t have to worry about their money fluctuating.

Lending: Due to its high yield, USDT is a great way for debt investors to collateralize their investments. This makes investing much more appealing.

Escrow: The process of escrow can be entirely automated using a stablecoin such as USDT. Without the intermediation of institutions, USDD is able to automatically handle the process using smart contract technology.

Payment: USDT can be used to complete everyday transactions. We can expect to see the use of stablecoins implemented in stores where payments are used by scanning a QR code. Businesses can benefit from this as they are able to avoid the high processing fees of traditional institutions.

Alternative to banking: Not everyone around the world has access to a bank account. With cryptocurrency, all users need is access to the internet to create their own account that they can then store USDT in. This will help unbanked people participate in the economy.

History of Tether USDT

USDT was founded by Reeve Collins, Craig Sellars, and Brock Pierce in 2014. It was one of the first cryptocurrencies to peg their value to fiat currency. It was originally released under the name Realcoin but rebranded as Tether to avoid being associated with altcoins. Tether was built upon Mastercoin (Omni Layer) which is a protocol layer built on the Bitcoin blockchain. USDT stablecoin was first used for liquidity in January 2015 when it was added to the BitFinex exchange. To this day, it remains the most popular stablecoin as it continuously holds the highest 24-hour trading volume.

Pros and Cons of Tether

Pros

Faster transaction speed: Transacting funds through banks can be tedious due to the lengthy processing times. This is especially true when transacting across borders. USDT cuts down majorly on these times, with transactions processing in as little as 5 minutes.
High-interest rate: USDT’s high-interest rate is the biggest pro of the stablecoin, however, it is also a con.

Borderless: The ability to be an anonymous and borderless store of value makes an algorithmic stablecoin a necessity for the real world in places experiencing extreme inflation with their fiat currency or sanctions such as Venezuela as they cannot use their own currency to emigrate or transact across borders.

Stable value: People from countries whose currency is prone to extreme fluctuations benefit by holding their funds in a store of stable value.

Transparent: Transparency means that transactions can be viewed by anyone on the internet. This is useful as it dispels any confusion as to where funds are going.

Lower fees: The price to transfer funds across borders tends to be highly expensive. Because USDT mitigates middlemen, it is able to offer low-fee transactions.

Cons

Security: Trading platforms and crypto wallets are highly exposed to hacker threats. Although there are safety measures that can be taken to convolute the threats, the risk is still big because, unlike traditional banking, crypto transactions cannot be reversed.

Counterparty risk: Due to being “decentralized”, multiple parties are involved in the management of a stablecoin. For the coin to maintain its value, all the parties involved need to be properly performing their tasks (security, reserving properly, etc).

Reserve risk: Without reserves being secure, the coin issuer cannot guarantee the value of a stablecoin with full confidence. Reserves are vital as they are the final backer of a stablecoin’s value.

Lack of confidence: The price of a stablecoin can fall if traders lose confidence in its ability to maintain the peg. This usually happens when a stablecoin is not sufficiently backed by hard assets or cash, as it could suffer a run and lose its peg against its target currency.

List of Popular Stablecoins

USD-pegged

USD Coin (USDC)
True USD (TUSD)
Binance USD (BUSD)
DAI
Paxos Standard (PAX)
sUSD
Reserve (RSV)
Gemini Dollar (GUSD)
Origin Dollar (OUSD)

GBP-pegged
Binance GBP Stable Coin (BGBP)

EUR-pegged
Stasis Euro (EURS)

Turkish Lira (TRY)-pegged
BiLira (TRYB)

Korean Won (KRW)-pegged
Binance KRW (BKRW)

Gold-backed

Tether Gold (XAUt)
Paxos Gold (PAXG)
CACHE Gold (CACHE)

Other

Petro (PTR) (oil-backed)

Where To Buy USDT

You can trade Tether USD on major crypto exchange platforms. You are able to buy, sell or use the USDT stablecoin for trading on both centralized and decentralized exchanges.

Centralized exchanges:
1. Binance
2. Coinbase
3. Huobi Global

Decentralized exchanges:
1. Uniswap
2. Crypto.com
3. Pancakeswap

Before buying cryptocurrency, it is important for users to know the risks involved. Because centralized exchanges hold your private keys, you are at risk of losing access to your assets if there is a hack. Holding your cryptocurrency in your own hardware crypto wallet is recommended. Still, you put yourself at risk of losing your assets forever if you lose your private key or are targeted by hackers unknowingly. In any case, it’s essential to do your research before investing in any crypto project; this article is for guidance only and should not be seen as investment advice.