Tether (USDT) is the world’s most popular stablecoin. As such, it serves multiple purposes in the market making it a core cryptocurrency in many investor strategies. While it may be impossible to envision a crypto market without Tether, this hasn’t always been the case. The Tether project overcame much controversy to make it to the top spot. Nowadays, Tether helps to provide liquidity and a hedge against market volatility. It’s able to accomplish this task because it is what’s known as a Stablecoin. For more cryptocurrency information, check out Bitcoin Dictionary section.
Announced in July 2014 by Brock Pierce, Reeve Collins and Craig Sellars as Realcoin, Tether (USDT) is the most popular and liquid stablecoin in the crypto-currency ecosystem. It is a token that was first issued on the Bitcoin blockchain using the Omni Layer platform, however it has since been launched as a token on various other blockchains (Ethereum, Tron, EOS and Algorand). For the most recent news about Tether, check their official website.
What are Stablecoins?
Stablecoins are blockchain instruments that have their value pegged to outside commodities. However, the advantages these coins bring to the market are undeniable. For one, their stability helps curtail the volatility of cryptocurrencies as a whole. Investors depend on stablecoins as a way to escape bearish markets without converting funds back into fiat currencies. However, in most stablecoin scenarios, the token will have its value pegged to a fiat currency. When it comes to Tether, USDT shares its value with the US dollar. In essence, 1 USDT is worth $1. Additionally, anyone can choose to redeem their 1$ of fiat currency through Tether Unlimited at any time. Interestingly, Tether helped to spawn a new class of stablecoins. Today, there are multiple fiat stable coins. Additionally, there are stable coins pegged to nearly every major commodity. There are coins pegged to the value of gold, diamonds, and even oil.
The history of Tether begins with the Realcoin project. Firstly, realcoin entered the market via its whitepaper in July 2014. The whitepaper caused a huge stir amongst the community for several reasons. Aside from its revolutionary technical aspects, the paper’s publishers are some of the most reputable names in the market. Specifically, Tethers whitepaper lists co-founders Brock Pierce, Reeve Collins, and Craig Sellars. Interestingly, the Realcoin name didn’t last very long. In November 2014, the Santa Monica based startup decided it was time to dawn a new title – Tether. Notably, Tether entered the market with a three-pronged approach.
The platform introduced three stablecoins as part of its entry strategy. The first coin was USTether. This token featured a 1:1 peg with the US dollar. The second coin pegged its value to Euros, and the last coin focused on the Japanese Yen, the latter being known as YenTether.
How does it Work?
Many people trading on exchanges, including Bitfinex, will use tether to buy other cryptocurrencies like bitcoin. Tether Limited argues that using this method to buy virtual currencies allows users to move fiat in and out of an exchange more quickly and cheaply. Also, exchanges typically have rocky relationships with banks, and using Tether is a way to circumvent that.
“Exchange users know how risky it can be to hold fiat currencies on an exchange. However, with the growing number of insolvency events, it can be quite dangerous. As mentioned previously, we believe that using tethers exposes exchange users to less counter-party risk than continually holding fiat on exchanges,” the company explains in a whitepaper on its website.
It sounds easy pegging a cryptocurrency to the price of a real-world asset. However, the task is notoriously difficult for many reasons. To accomplish this task, Hong-Kong based Tether Limited originally claimed that for every ASDT issued, the firm held an equivalent amount of dollars kept in reserve. Additionally, as USDT issuance got into the billions, these claims came under heavy scrutiny. In March 2019, the company changed the backing of USDT to include loans to affiliate companies. Despite the change, Tether remains the top stablecoin in the world.
USDT is unique in that it functions on the Omni blockchain protocol. Omni is a versatile platform that is most famously known for its Bitcoin anchoring capabilities. Currently, Omni provides this service to multiple firms. In its earliest days, every Omni transaction featured a dual recording strategy that would place the entry on both the OMNI system and record it in a Bitcoin transaction sharing the same transaction hash.
Tether and Bitfinex
It’s important to note that Bitfinex became the first exchange to introduce Tether into its platform in January 2015. Instantly, stablecoins became a success. The exchange saw huge user activity regarding this token. Consequently, Bitfinex became the leading exchange in terms of Tether trading. It wasn’t long before researchers began to question Tether’s solvency. It was the first stablecoin in the market, and its unprecedented rise to success was not without concern. These concerns led researchers to delve deep into the Tether Bitfinex connect.
In 2017, a group of independent researchers from the International Consortium of Investigative Journalists released the Paradise Papers. Conversely, this document confirmed some of the worst fears of those in the market at the time. The documents showed that both Tether and Bitfinex shared the same management and corporate structure. Researchers discovered that both entities listed the same Chief Executive, chief financial officer, chief strategy officer, and general counsel in their corporate documentation. The founder of Tether, a graduate of Yale University, Philip Potter, also handled the major operations of Bitfinex.
The report went on to detail how the two companies were really more like one conglomerate. The documents demonstrated how the majority of Tether accounts entered the market on the Bitfinex platform. Furthermore, these researchers went as far as to label Tether the driving force behind the 2017 crypto break out year. Check Bitfinex’s website for more information about their dealings with Tether.
The Importance of Tether (USDT)
Tether is one of the most dominant cryptocurrencies in the market. It provides investors with additional flexibility as it serves as a dollar replacement on many popular exchanges. Here are just some of the reasons Tether continues to see adoption:
- Exit Strategy – Market volatility is a major concern in the crypto sector. When the bears start to take over the market, investors only have a few options to consider. They can sell their holding and convert them back into fiat. This process is time-consuming and involves the most fees possible. Or they can ride the bear market out and take the losses. Tether adds a third option to the equation. Convert to Tether and avoid the fees and volatility.
- Reducing Friction – Since Tether is another blockchain asset, converting from Bitcoin or any cryptocurrency into Tether is as easy as exchanging Bitcoin for Ethereum. This conversion introduced a frictionless way for investors to avoid volatility and remain in the cryptomarket.
- Accounting – Another major advantage of using Tether as a means of payment is accountability. Since its inception of Bitcoin, there has been confusion surrounding its use as payment in terms of accounting. Businesses that pay for goods or services with crypto are often left to estimate the value of their payment against the US dollar. Stablecoins eliminate this concern because they always equal their fiat counterparts.
- Transit Cryptocurrency – Lastly, Tether facilitates the transfer of real cash into digital cash. This is a major task in some regions of the world. Remember in some locations it’s a difficult task to convert crypto into fiat currency. In some countries the practice is illegal. For all of these regions, Tether is a smart alternative.
Advantages & Disadvantages
- Useful for quickly swapping between cash and crypto in exchanges.
- Stable, useful for preventing short term losses by volatile crypto markets.
- Long term investments may lead to losses.
- Reliant on fiat remaining stable.