Tether, also known as USDT, is a blockchain-based stablecoin that aims to mimic the price of the US Dollar. Tether is a collateralized stablecoin, which means each USDT in circulation is reportedly 1:1 backed by either US dollars or loans to affiliate companies.
USDT based on Ethereum, Omni and Tron, so crypto enthusiasts can choose the network that suits their operations.
Tether, like other collateralized stablecoins, manages to maintain a ‘stable’ value that closely follows the US dollar because token holders are theoretically able to exchange their USDT holding to USD for a 1:1 rate at any time. Thus, the market maintains USDT at a price close to $1 because if the price goes too low or too high traders are able to profit from arbitrage.
Why do people use USDT?
Due to the components of USDT, it is a very valuable tool for traders, investors and many other people. USDT is essentially viewed as a blockchain based fiat alternative, which means it can be used in place of fiat, with all of the benefits of blockchain.
With USDT transactions are borderless, fast and low cost. Unlike sending money across borders, when using a stablecoin like USDT you’re able to settle your transaction in minutes, if not seconds.
This makes stablecoins like USDT a no-brainer for investors and traders because they can view it as a more flexible version of fiat currency. Moving between exchanges is cheap, fast and easy.
Moreover, because USDT is not fiat, it’s not regulated like fiat trading is. This enabled many cryptocurrency exchanges to list USDT trading pairs, a valuable tool for traders. They are able to trade cryptocurrency against something that mimics the value of fiat.
Over the years Tether has been the subject of a lot of controversy. For example, in 2017 Tether was allegedly hacked and $31 million was stolen, which prompted a hard fork. From there the community started to worry whether Tether had the money to back up the huge, and rising, market cap. To make matters worse, transparency was extremely limited and just when the community was demanding transparency the most, Tether parted ways with their audit firm in early 2018. They were subpoenaed by regulators shortly after this.
Then in early 2019 New York Attorney General Letitia James obtained a court order enjoining iFinex, the parent company of Tether, from further violations of New York law. They were accused of covering up a $850 million dollar loss using Tether cash reserves.