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What is Tether? What you need to know about the USDT stablecoin

By Ankish Jain

Edited by Charlie Mellor

11:00, 27 November 2022

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In this article:
BTC/USD
Bitcoin / USD
23555.90 USD
-160.55 -0.680%
ETH/USD
Ethereum / USD
1644.39 USD
5.59 +0.340%
USDC/USD
USDC/USD
1.0206 USD
-0.0008 -0.080%
USDT/USD
USDT/USD
1.0003 USD
0.0001 +0.010%

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Tether USDT cryptocurrency physical coin placed on microscheme in the dark background. Selective focus.
Tether (USDT) is a stablecoin linked to the US dollar. Photo: Mario Krpan / Shutterstock

Although market volatility in cryptocurrencies is nothing new, it has skyrocketed recently. Stablecoins, intended to preserve their value independent of market fluctuations, have received a lot of publicity and attention due to such market downturns.

People who want to own a digital currency with a stable value backed by an asset utilise stablecoins.

One of the most popular stablecoins throughout the years has been tether (USDT), the third-biggest cryptocurrency by market capitalisation and the largest stablecoin.

Despite being widely used, it is a controversial stablecoin. In this article, we'll go over all you need to know about USDT.

What is tether?

Tether (USDT), introduced in 2014 by Tether Limited, is an ERC-20 token based on blockchain technology and a stablecoin linked to the US dollar.

Stablecoins typically have a 1:1 association with the US dollar and are less volatile than cryptocurrencies such as bitcoin (BTC) and ether (ETH).

As the first exchange to offer the coin, there were rumours that Tether was affiliated with the Bitfinex cryptocurrency exchange shortly after its introduction. This information was validated by research and investigation undertaken by the Paradise Papers. Tether Limited is owned by the Hong Kong-based firm iFinex, which also controls the cryptocurrency exchange Bitfinex.

What is tether coin used for? One of the most significant benefits of the tether cryptocurrency is that it enables traders to transfer cash between cryptocurrency exchanges without having to withdraw fiat currency and then deposit it on another exchange, which can be a time-consuming process.

The Tether Treasury wallet was hacked in November 2017, resulting in a loss of $31m USDT. A Tether hard fork followed in order to ban a specific address and freeze its funds.

The fact that addresses and assets inside the Tether network could be easily manipulated and controlled by a small group of hackers created a significant vulnerability for Tether as a blockchain network and called into doubt its future sustainability.

Currently (255 November), the USDT coin is one of the most prominent cryptocurrencies, with daily transactions totalling billions of dollars. According to statistics from CoinMarketCap, USDT often ranks first in terms of the daily trading volume.

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How does tether work?

Tether's objective is for 1 USDT to be interchangeable for $1. When users redeem tether for fiat cash, the coins are destroyed and removed from circulation.

Tether Limited must have an equivalent amount in reserves to mint USDT, guaranteeing that customers can get their money back if they want it. While  that is how Tether is meant to function in principle, the reality is a little more complex. There have been concerns about Tether Limited's dependability concerning its reserves.

Initially, the firm stated that each USDT was backed one-to-one by $1. That turned out to be incorrect. Tether Limited's lawyer stated in 2019 that 74% of USDT tokens were backed by cash or cash equivalents.

Furthermore, when Tether disclosed its reserves in 2021, just 2.9% of USDT tokens were backed by cash. The remaining reserves comprised secured loans, corporate bonds and commercial paper. 

Since February 2021, Tether has been disclosing independent accountants’ reports that offer a detailed breakdown of the reserves backing all of its tokens.  

USDT coin price history

USDT/USD five-year historical performance

According to CoinMarketCap, as of 25 November, the tether cryptocurrency was trading at $0.9994, almost maintaining its peg to the US dollar. It had a market capitalisation of $65.32bn.

There have been depegging incidents over the years. During the early years after its launch, USDT tumbled to an all-time low of $0.5683 on 2 March 2015. However, it quickly bounced back and retained its price parity with the USD by 15 March.

In May 2022, Tether briefly depegged from the USD amid the crash of Terra UST, an algorithmic stablecoin, and reached $0.9485 on 12 May. However, once again, it quickly bounced back and closed at $0.9976 on the same day.

Controversies surrounding USDT and Tether Limited

Hiding losses 

In 2019, New York Attorney General Letitia James accused Tether’s parent entity of concealing an $850m loss by tapping into Tether’s currency reserves.

Tether settled with James in 2021, agreeing to pay $18.5m and discontinue trading with New Yorkers. Despite this, Tether denied any wrongdoing and stated it merely desired to move on.

Antitrust accusations

A class action lawsuit filed in June 2020 accused Tether of manipulating the markets by issuing USDT to itself without dollar backing and then selling the USDT to Bitfinex.

LUNC/USD

0.00 Price
+10.100% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee -0.0500%
Overnight fee time 22:00 (UTC)
Spread 0.00000933

ETH/USD

1,644.39 Price
+0.340% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 5.00

BTC/USD

23,555.90 Price
-0.680% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 60.00

XRP/USD

0.41 Price
-0.610% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.00352

In October 2021, the Commodity Futures Trading Commission (CFTC) filed an order settling charges concurrently against Tether Holdings Limited, Tether Limited, Tether Operations Limited, and Tether International Limited.

The ruling required Tether to pay a $41m civil penalty and prevent additional breaches of the Commodity Exchange Act (CEA) and CFTC rules.

The decision also forced Bitfinex to pay a civil penalty of $1.5m. Additionally, it prevented Bitfinex from committing additional violations of the CEA, as alleged, and compelled Bitfinex to create and maintain other measures designed to avoid unlawful retail commodities transactions.

Tether news and price drivers

Tether has undergone several key milestones that may affect the token’s performance in the future, sparking or discouraging investor sentiment. 

Clarification on FTX and Alameda exposure

Tether clarified on 17 November 2022 that despite Alameda Research, the sister company of defunct cryptocurrency exchange FTX, being one of the largest issuers of USDT, the failure of both firms does not constitute a danger to Tether.

Tether emphasised that Tether was meant to endure the extreme volatility of the cryptocurrency market. Although the FTX scenario has been exceptional in many respects, it does not pose a danger to Tether or USDT.

USDT will soon be available in Brazilian ATMs

Tether stated in October that beginning in November, the USDT coin will be usable at 24,000 ATMs throughout Brazil.

A collaboration with Brazilian crypto services provider SmartPay made the integration feasible and enabled the conversion of USDT to Brazilian real. SmartPay is connected with TecBan, a business that runs 24,000 ATMs.

At launch, users will only be able to deposit USDT and withdraw reals. Beginning in February, however, they will be able to deposit reals at ATMs and get USDT.

“The difficulties and limitations imposed by inflation and a less-than-inclusive financial system has excluded many of Brazil’s citizens from being able to participate in the country's growing economy,” said Paolo Ardoino, CTO of Tether. He added: 

 “Adding tether tokens to ATMs across Brazil provides the opportunity to include more people in the financial system. This will bring major changes not only to the payments industry but to the entire Brazilian financial ecosystem.”

Pros and Cons of USDT

Like every other cryptocurrency asset, USDT has advantages and disadvantages. Let's examine some of the pros and cons.

Pros

Preferred and reliable: USDT is the most popular stablecoins. It has typically maintained its peg to the US dollar.

Highly liquid: USDT often has the largest trading volume on any given day, making it a highly liquid asset relative to other less liquid assets.

Less volatile: As its value often hovers around $1, USDT is less volatile than bitcoin (BTC) and altcoins.

Easily accessible: USDT is available on almost all exchanges and all major blockchain networks.

Cons

Lack of transparency: Tether continues to be closely monitored. It has yet to enforce a transparent business strategy. Furthermore, it is still being determined if it keeps US currency reserves equal to its available supply.

Accusations and lawsuits: Tether has been the subject of controversies and legal action, which may have damaged its reputation.

The bottom line

Since its inception, the tether (USDT) price has been mostly stable, fluctuating around $1. Nonetheless, external circumstances have caused USDT to lose its peg, albeit briefly.

USDT has recovered and regained its peg each time it’s been lost, as well as during instances in which the peg exceeded $1. USDT has been the most popular stablecoin in the market for a considerable time.

The question remains whether USDT will remain the most popular stablecoin, or whether the USD Coin (USDC), a powerful opponent of USDT, will take over.

While knowing key metrics about Tether is important for accessing the project’s health, it shouldn’t be a substitute for your own research. You should always conduct your own due diligence before trading, looking at the latest news, technical analysis and fundamental analysis, while also considering the opinions of a wide range of analysts before making any trading decision. 

Keep in mind that past performance is no guarantee of future returns. And never trade or invest money that you cannot afford to lose.

FAQs

How many USDT coins are there?

According to CoinMarketCap, as of 25 November, USDT had a circulating supply of 65.36 billion tokens.

Who owns Tether?

The Hong Kong-based business iFinex, which also runs the cryptocurrency exchange BitFinex, is the owner of Tether.

What makes Tether unique?

Tether is unique because it is backed by assets in the company’s reserves to guarantee that USDT maintains a 1:1 exchange rate with the US dollar.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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