What is it?
Tether is a so-called ‘stable coin’ which was launched in 2014. Its token is ‘USDT’ and it is designed to be a peg to the price of the US dollar.
It ranks as the fifth largest cryptocurrency by market value, at US$69bn, and was originally built on the Bitcoin blockchain. USDT however has been updated several times and now works on Ethereum, EOS, Algorand and OMG blockchains.
The idea behind USDT is that it allows users to send dollar-equivalent currency to each other without a third party – which is more generally a core tenant of cryptocurrency – whilst maintaining a stable, non-volatile value that’s in-line with FIAT currency.
Stable-coins like USDT are seen by some crypto-evangelists as potential ‘off-ramps’ from the crypto-economy back to traditional finance.
They can also be used by traders, allowing them the equivalent of ‘going to cash’, and sit on the sidelines, without exiting crypto-held funds from the digital space.
Who founded it?
Tether was launched seven years ago, under the previous name ‘Realcoin’, by creators by Brock Pierce, Reeve Collins, and Craig Sellars.
All three founders had prior experience with crypto before starting on USDT.
How does Tether work?
Described at the top level, USDT works by being pegged to the US dollar.
Simply put, its price is intended to match the value of the US dollar – though to achieve this the system maintains underlying holdings in commercial paper, fiduciary deposits, cash, treasury bills and reserve repo notes that equal USD in reserves.
Whenever Tether issues a new USDT token, it allocate the same value of USD in reserve in a mechanism that’s intended to ensure that its fully backed by cash and cash equivalents.
Why was it created?
USDT was created as a way for investors to avoid the volatility that is usually attached to the crypto market, such as with Bitcoin and Ethereum.
However, the coin has encountered controversy with regards to the nature of its underlying USD reserves.
Critics have raised concerns that it has never been fully audited by an independent third party, and those concerns have disrupted its price, falling as low as US$0.88 at one point (a discount which negated the crypto’s very purpose).
Today, the price is US$1.00.
Who uses it?
Tether is popular with overseas investors who do not possess a USD bank account, as well as traders who do not wish to withdraw cryptocurrencies such as Bitcoin during high periods of volatility.
Why is it an alternative to Bitcoin?
Basically, Tether is used by crypto-investors who want to hit the pause button.
It is a haven for such traders to de-risk into a cash equivalent position during periods of high volatility.
The coin also provides a simple crypto-native means to transact US Dollars between users, free of third parties that would usually be attached to fiat currency.
How many coins in circulation?
The volume of USDT is limited by the underlying reserves.
There was some 68bn of USDT in circulation as of October this year, with 48bn issued in 2021, according to Bloomberg.
How is the network secured?
As it does not operate on its own blockchain, Tether is secured by the algorithms of the blockchains it operates on, such as Bitcoins and Ethereum for example.
Where can you buy it?
USDT can be bought on most crypto exchanges and is extremely popular on platforms where fiat-to-crypto trading is unavailable.
It can be bought on prominent exchanges such as Coinbase, Binance, OKEx, HitBTC and Huobi Global.