What Is Tether (USDT)?
Tether Limited is a Hong Kong-based company that released the controversial stablecoin called USDT. In fact, USDT is the first and the most popular stablecoin in the crypto market.
The term “stablecoin” essentially means that the Tether price doesn’t change much based on market fluctuations. This is the case because the USDT token is pegged to the US dollar at a 1:1 rate. Thus, one USDT token is approximately equal to 1 US dollar. Check out the Tether price chart above to see that for yourself. Its value stays fairly close to $1, even when the market fluctuates.
To be more precise, Tether is a collateralized stablecoin. It’s backed by assets and reserves that belong to the company. In order to maintain the USDT peg to the US dollar, all Tether coin reserves must be equal to or less than the total number of USDT tokens in circulation. Thus, Tether must assign an equal amount of US dollars to its reserves each time it issues new USDT tokens to make sure that USDT is completely backed by cash.
Besides, note that USDT operates as a second-layer token because it doesn’t have its own blockchain. Even though initially it was only based on the Bitcoin network, as time passed it was integrated into other blockchains including Tron, EOS, Bitcoin Cash, Solana, Ethereum, Kusama, and so on. Consequently, the token is secured by the hashing algorithms of the aforementioned blockchains.
The Story of Tether
In a whitepaper that was posted online in January 2012, software developer J.R. Willett discussed the potential for creating new crypto assets on top of the Bitcoin blockchain. This is exactly when the concept of Tether began. Willett later put his concept into practice by creating Mastercoin. The Mastercoin protocol was then used as a foundation for the creation of Tether.
USDT token was initially released in 2014 as Realcoin. Realcoin was a second-layer token constructed on top of the Bitcoin network. The Omni layer (a transport protocol) was used to develop the token. However, after some time, it was rebranded as USTether, which eventually turned into USDT.
Craig Sellars and Brock Pierce were the members of the Mastercoin Foundation and the two initial founders of Tether. Reeve Collins was the third founder of Tether. Apart from being founders of Tether, they all also contributed to various other crypto, entertainment, and tech projects.
The Goal of Tether
Essentially, Tether tokens combine the decentralization of crypto with the stable value of the US dollar. Thus, USDT tokens can be transacted without any middlemen or financial institutions. However, they also manage to keep their value stable by pegging it to the US dollar.
The following are the three main use cases of Tether coins:
- A way to deal with the volatility of the crypto market. High volatility is one of the essential characteristics of the crypto market. It’s affected by a huge variety of factors that make the prices of various crypto assets fluctuate. However, it’s not the case with the USDT price, since it’s backed by the US dollar. Thus, by keeping its price stable, USDT contributes to lowering the volatility of the whole market.
- A backup plan for investors. Tether crypto assets often become a savior for investors when the crypto market starts to fluctuate extremely. They can link their portfolios to Tether, which allows them to avoid a full withdrawal of their holdings. Since USDT is not really affected by market volatility, it allows investors to keep the value of their holdings the same.
- An alternative for deposit or withdrawal operations. Users can easily transfer their US dollars between regions, countries, and even continents thanks to Tether's widespread acceptance. Thus, instead of sending US dollars to some other country, they can send USDT tokens, which can then be converted into US dollars.
The Supply of Tether Coins
Essentially, the total supply of Tether tokens doesn’t have an actual limit. Since USDT is owned by a private company, technically, its issuance is solely constrained by Tether's own policies. However, Tether doesn’t announce schedules of USDT issuance in advance.
The company only offers daily transparency reports that detail the overall value of its asset reserves and liabilities. These reports can be used to determine the quantity of USDT tokens that are in circulation.
However, in reality, the supply of Tether cannot be endless. The number of tokens is constrained by the company's actual cash reserves. This is the case because Tether asserts that every single USDT is meant to be backed by one US dollar. Therefore, if Tether would not be able to acquire more cash, it also wouldn’t be able to issue more USDT tokens.
Getting back to the Tether price, it’s important to highlight that, even though it’s a stablecoin, the USDT price might still swing a little. If you looked at the Tether price chart above, you would notice that the line there is not straight. However, one way or another, it does stay close to $1.
The Controversy of Tether
It was mentioned in the beginning that Tether is a controversial token. Why? Well, first of all, some people doubted Tether's assertions concerning the reliability of their US dollar reserves. This even resulted in bigger USDT price swings when it managed to go below $0.9.
Besides that, some people tend to question the security of Tether. The fact that Tether's reserves have never undergone a thorough audit by an impartial third party has drawn some criticism. Also, for making false assertions about the state of its books, the company has received fines more than once.
Overall, there’s definitely some doubt surrounding the USDT token. However, even though there is some skepticism towards this asset, many people do believe that Tether will not fail because of how “big” it is.