What Is Tether (USDT)?

Written by

Samu-Ville Lampiranta

Senior Writer

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Tether is a so-called stablecoin, meaning its value is pegged to a fiat currency – in this case, the US dollar.

It’s one of the most important cryptocurrencies and the biggest stablecoin by market cap.

But what is USDT and what is the future of Tether?

Read on and find out! 
 

Tether History  

Many of you might be wondering when Tether was introduced and who created USDT. The answers are right here: the token was initially launched using the Bitcoin blockchain in 2014, by a group of friends from Santa Monica, California. 

At the time of the token’s launch, it was known as RealCoin. The founders, Reeve Collins, Craig Sellars, and Brock Pierce soon renamed the project Tether, and it has since become one of the major players in the crypto industry. 

January 2015 was a turning point for USDT, as it became possible to use Tether trading via one of the world's biggest cryptocurrency exchanges, Bitfinex. At first, the demand wasn’t great.d.  However,  things took a big turn in 2018, when the number of outstanding USDT coins grew from roughly 10 million to over 2.8 billion. 

Tether became the biggest cryptocurrency in trading volume in 2019, when it surpassed Bitcoin and other big crypto names It still occupies this strong position, and right now it looks like there are no real competitors to challenge Tether’s number one ranking. 

Tether is run by a Hong Kong-based company, iFinex, and for each USDT minted, the company claims to have one USD worth of collateral. Therefore, it should be possible to exchange USDT for USD at any time. 

But what is the difference between USD and USDT? The biggest difference is that USDT is run on a blockchain and not controlled by a central bank.
 

How Does Tether Work? 

Tether is widely available, so you can purchase some in virtually any exchange. In the beginning, Tether worked using the Bitcoin blockchain, but now it supports multiple blockchains. The token uses a proof-of-reserves system, where the reserve assets are equal to the number of Tether tokens in circulation. 

In theory, this should work so that when you buy 100 USDT, exactly $100 is placed in the reserves. That is not entirely true, though, as the company behind Tether has stated that it is backed by other valuable assets, not only cash. 

Tether cannot be mined, as new coins are only minted after the fiat deposits have been authenticated. Once you get hold of some USDT, you can use them the same way as you would any other cryptocurrency. 
 

The Real Benefits of Tether 

As it is one of the biggest cryptocurrencies, it seems obvious that Tether has some real benefits. Here are a few of the most important advantages you’ll want to know if you are planning on investing in Tether. 
 

Tether’s value is constant

Arguably the biggest benefit and the number one reason why investors choose Tether is the stable value. One USDT is always worth one USD, so the value of your investments is safe. If you manage to get interest for your deposits, you can even make some money with your USDT holdings. 
 

No Volatility 

Many cryptocurrencies suffer from very high volatility: the value can go up or down in a matter of minutes. This is not the case with USDT, because the value is stable. Of course, that also means you will not profit from some major upswings. In the long run, a steady value might prove to be a better alternative. 
 

Low Fees 

The fees associated with using Tether are relatively low, which is probably one of the reasons it has become one of the most popularly traded cryptocurrencies in the market. Given the low fees and the predictable price, many investors just entering the cryptocurrency market start with USDT. 
 

The Real Drawbacks of Tether 

While there are many benefits, the other side of the virtual coin is that there are some disadvantages, too. Here are a couple of the most significant drawbacks of Tether that you should be aware of before you invest. 
 

Low Transparency 

The company behind Tether has claimed to have backed every token with an equivalent amount of USD or other assets. At the same time, the company has also been fined for not providing any proof of this or audit reports. 

This could be a big risk for investors. In recent years we’ve seen a few cases where things didn’t quite turn out as promised. This caused investors to lose their money and sent waves through the entire industry. 
 

Very Centralized 

According to a study by the researchers of Coin Metrics, over 80% of Tether tokens in circulation are controlled by only 300 wallets. Given that the market cap of USDT is tens of billions, this means these wallets own massive amounts of Tether. 

Many cryptocurrencies rely on decentralization, since a very centralized token poses risks to the other, non-major holders.  In this case,  stablecoins could, potentially, be used to manipulate the prices of other cryptocurrencies. 
 

Tether Price History 

When you check out the Tether price history, you’ll notice one thing right off the bat: one USDT has been and still is worth exactly one US dollar. The value is pegged to the USD, so the price does not fluctuate the same way most other cryptocurrencies do. 

The value of USDT does, of course, change when compared with Euro or other fiat currencies, but it follows in the footsteps of USD. If the currency was unpegged and the value was determined by the markets, then Tether would lose its purpose. 
 

What is Tether Used For? 

What Can I Do With Tether? Arguably one of the most important uses for USDT is safeguarding your digital assets against the volatile crypto markets. Tether can also be used to buy gold and traded to other cryptocurrencies. 

Thanks to its steady value, you can also easily useTether as a currency to pay for all kinds of goods and services. Many online betting sites and casinos also accept Tether, so you can use it for gambling, among many other things. 

It’s safe to say that cryptocurrencies are still not being used for mainstream retail purchases, but when this changes, USDT is probably going to be a top candidate. The trading volume is already high, new coins can be minted without any limits, and the value is steady, so all the key elements are there. 
 

The Future of Tether 

Even though Tether has suffered from some transparency issues and seen its market cap shrink from the good old days, you shouldn’t downplay its significance. Tether remains one of the largest and most commonly traded cryptocurrencies, and it still holds the number one spot of all stablecoins. 

We don’t have a crystal ball that will tell us the shape of all crypto things to come, but it seems probable that Tether will remain an important liquidity provider in the crypto industry in the future. With the rough times that we’ve seen in the crypto markets over the past years, the demand for Tether could soon increase big time.