14 August 2020

Tether USDT

Everything about the US Dollar exudes value and stability. It has, for decades now, been the default global reserve currency.

As a result, institutional and conservative cryptocurrency investors have sought for an asset class that can leverage a combination of decentralized blockchain technology and stability of the US Dollar. Tether (USDT) provides an option for traders and investors to keep their value constant against the problem of crypto volatility.

What are Stablecoins?

Before we dive into analyzing Tether USDT, let’s first define the stablecoin asset class in cryptocurrency.

Stablecoin
Source: Stablecoins: Everything You Should Know (Dchained)

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.

What is Tether USDT?

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.

Tether was the first stablecoin ever issued. Since its inception on Bitcoin, US Dollar Tether (USDT) has quickly become the most widely used stablecoin  as its high volume and liquidity make it an ideal store of value in moments of economic instability or volatility.

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.

tether token issuance
Source: Brave New Coin

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.

During a court case by the New York Office of the Attorney General (NYOAG) in 2019, 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

Given that USDT exists in most Ethereum as ERC-20 compliant tokens, USDT can be stored in most cold or hot wallets.

Tether USDT on Ethereum ERC 20
Source: Bitcoin Exchange Guide

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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