14 August 2020

 

Everything about the US Dollar exudes value and stability. It has, for decades now, been the default global reserve currency. Incidentally, the very purpose of cryptocurrencies like Bitcoin is to challenge this aspect of the greenback’s power.

Crypto Volatility

However, dislodging, or even remotely competing with the mighty USD, is very difficult. Challenging the institutional backing of the USD, let alone reputation, is a mountain too big to climb.

The cryptocurrency sector is rife with volatility. Getting a coin that leverages the stability of the USD is a way to have the best of both worlds. Tether (USDT) provides an option for traders and investors to keep their value constant against the problem of crypto volatility.

What is Tether (USDT)?

Within crypto circles, a digitized version of a USD (or any fiat in that case) is called a Stablecoin.

Stablecoins are built with the same features as common cryptocurrencies, but with an overarching objective of protecting recipients from sudden price shocks typical in the crypto market. In this case, a Stablecoin will typically mimic fiat currencies but exist within a secure blockchain.

These coins bear all the properties of fiat but are global and secured by the blockchain. However, not all blockchains can tokenize and secure fiat. Only those with smart contracting capabilities like Ethereum, Tron, or Algorand can.

The majority of Stablecoins are found in the most active smart contracting platform, Ethereum. Ethereum is the home of the most popular Stablecoin in the crypto world, USDT.

Stability merging with Bitcoin’s Transparency

Admittedly, cryptocurrencies offer several advantages over fiat currencies and even assets available in the traditional market.

Ownership of these assets gives you total control, meaning they can also act as a store of value in moments of economic chaos or political turmoil.

To counteract the space’s high volatility, USDT acts as a store of value when prices are sliding, or is a conduit to the existing world of crypto in territories where fiat trading is banned.

Developers can also rope in USDT to create new technologies or enhance applications. At the same time, philosophical crypto users can use the Stablecoin to enact change in the world. In third world countries, USDT can be used as a secure means of transferring value.

Tether Limited and Treasury

Behind USDT, a Stablecoin with a market cap of $6.3 billion, is Tether Limited. As the official issuer of USDT from late 2014, the company’s objective is to integrate blockchain and fiat currencies primarily as an antidote to crypto’s wild fluctuations.

Each USDT in circulation is backed by $1 represented in different forms of liquid assets like cash, treasury bills, or notes after the adoption of a Proof of Reserve Process.

The Tether Treasury is tasked with the minting of USDT directly from the Tether platform. As such, every USDT in circulation can be redeemed for USD fiat. Although Ethereum-based USDT is dominant, Stablecoins are issued in Tron, EOS, Liquid, and Algorand blockchains as well.

USDT Controversy

There is controversy around USDT reserve and issuance systems. Despite claims that all coins are backed 100 percent by cash and other liquid assets, it has never been audited by any of the top four audit firms.

In 2019—amid a pending court case by the New York Office of the Attorney General (NYOAG), a lawyer representing Tether Limited admitted that USDT in circulation wasn’t backed by 100 percent USD, but instead, a conflation of different liquid assets including cryptocurrencies generally termed as “cash equivalents”.

This called into question their credibility, with some convinced that the issuer had become an unregulated bank.

Nonetheless, USDT is pseudonymous, mirroring Bitcoin’s functionalities. Besides, being the first, it boasts a long track record with strong solvency, given its colossal valuation. Being the most valuable, a trader or investor should consider how easy it is to store or exit USDT positions.

Ethereum is the home of USDT

The fact that most exist in Ethereum as ERC-20 compliant tokens mean USDT can be stored in most cold or hot wallets.

The popularity of ERC-20 complaint USDT further affects trade volumes, which have a subsequent effect on liquidity—or the ease of converting USDT to cash.

Additionally, the more widespread it is in a particularly accessible format, the easier it is to securely store. Security is vital in crypto circles and is especially crucial for USDT since every coin in circulation theoretically presents a trader’s hard-earned greenback.

Final Thoughts

USDT is one of the most influential cryptocurrencies in circulation today. For anyone getting into crypto, it is essential to know what the coin is designed to do, its volatility, applicability to an investor, miner, or trader, and how to store it securely.

 

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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