What Is Tether (USDT)?

TL;DR

Tether (USDT) is one of the most popular stablecoins out there. It was designed to hold a one-to-one value with the US dollar. The coin exists on many different blockchains and has experienced rising trading volumes and improved liquidity over the past few years.

Like other stablecoins, USDT is useful for trading cryptocurrencies as it allows traders to avoid market volatility that is common to BTC and other crypto assets. Using stablecoins also removes the extra costs and delays of converting between crypto and fiat currencies.

Introduction

Tether is a key part of the cryptocurrency ecosystem. As of December 2020, Tether is ranked as the world’s fourth-largest cryptocurrency with a market cap of almost $20 billion, trailing only behind Bitcoin, Ethereum, and XRP. In addition, it often ranks as the coin with the highest daily trading volume, even surpassing Bitcoin.

But what is Tether, and how can it be useful to you?

Tether (USDT) is the world’s first stablecoin (a cryptocurrency that mimics the value of a fiat currency). It was originally released in 2014 under the name Realcoin by Bitcoin investor Brock Pierce, entrepreneur Reeve Collins, and software developer Craig Sellers.

USDT was originally issued on the bitcoin protocol through the Omni Layer, but it has since then migrated to other blockchains as well. In fact, as you can see on the chart below, most of its supply exists on Ethereum as an ERC-20 token. It’s also issued on several other blockchains, including TRON, EOS, Algorand, Solana, and the OMG Network.

Tether has gone on to experience both successes and controversies – much like many of the world’s foremost cryptocurrencies.

Especially in its early days, the price of USDT has been somewhat volatile, even reaching $1.2 at some point. The coin has experienced far less volatility since early 2019, however. This is likely thanks to a steady rise in its trading volume and the cryptocurrency markets’ overall advancement.

How does Tether (USDT) work?

Stablecoins’ utility is in their relative stability, as opposed to more traditional crypto assets. As a stablecoin, Tether’s appeal is in its tethering or pegging to fiat currency. USDT was said to have been originally pegged exactly to USD, with $1 USD held for every USDT in circulation.

As per Tether’s original whitepaper:

Each tether unit issued into circulation is backed in a one-to-one ratio (i.e., one Tether USDT is one US dollar) by the corresponding fiat currency unit held in deposit by Hong Kong-based Tether Limited.

While the original one-to-one asset for Tether was USD, it has morphed to include holding collateral with other real-world cash equivalents, assets, and receivables from loans.

As you can see on the USDT/USD chart below, the coin (generally) trades at a stable one-to-one rate with USD. However, significant market events can have an effect on its price.

Why Tether (USDT) is important

Tether bridges the gap between crypto and fiat currencies. It presents an easy way for investors to obtain a one-to-one trade for the USD, without the innate volatility of other cryptocurrencies.

By providing this stability, investors can hold a digital asset similar to a fiat currency but with the ease of trading for other coins on the crypto markets. Tether’s key features make it a popular coin – although it isn’t immune to risks, either.

Key features

1:1 ratio (USD to USDT)
Stability (as much as the USD can be considered stable)
Available on different blockchains
Different use cases as compared to traditional cryptocurrencies

Tether (USDT) use cases

Quick access to market stability

If the price of Bitcoin or other crypto assets is falling fast, you’re able to trade quickly to USDT instead of trying to cash out.

Easily move funds between exchanges

With Tether, you’re able to move your funds between exchanges very quickly. This can also be useful for arbitrage trading with other coins.

Trade on crypto-only exchanges

Some exchanges do not have facilities for fiat deposit and withdrawal but do allow USDT trading. By obtaining Tether first, you’re able to trade on these exchanges without worrying about the market volatility of placing your main trading funds in BTC (or other cryptos).

Forex-style trading

Since USDT is pegged to the USD, you can do Forex-style trading by exchanging local (non-US) currencies into USDT when their value is high against the USD. You can then cash out to local currencies when the local currency drops or exchange for other assets.

How to store Tether (USDT)

Apart from Binance and other cryptocurrency exchanges, you can store your USDT on various crypto wallets. These include web and mobile wallets (like Trust Wallet), or cold storage hardware wallets (such as Ledger) through third-party software wallets.

As USDT is issued on a range of different blockchains, you’ll need to ensure that you are transferring it from and to the same network.

For example, if you go to the Binance USDT withdrawal page, you will find five different network options to transfer to: Binance Chain (BEP2), Binance Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI), and Tron (TRC20).

USDT transfer network options on Binance.

So be careful. If you use the wrong network you might lose your funds. For instance, if you try to send Omni USDT to an ERC-20 USDT address, your transfer will most likely be lost.

Note that, as of December 2020, the ERC-20 USDT is the only type supported by Ledger. This means that the USDT running on the Bitcoin blockchain (Omni Layer) is not available to transfer to the Ledger hardware wallets.

Other Tether cryptocurrencies

Apart from USDT, Tether also has other stablecoins:

EURT: a Euro-pegged Tether coin
CNHT: a Chinese Yuan-pegged Tether coin
XAUT: a physical gold-pegged Tether coin

You can see how much of each coin is circulating on various blockchains at Tether’s Transparency page.

Closing thoughts

Stablecoins introduced a lot of convenience in the crypto trading world as they reduce the need for traders to convert several times between fiat currencies and crypto. As such, USDT is a handy asset to have on hand for crypto trading.

While there have been various questions about the validity of the reserves, volumes over the past few years indicate faith in Tether's value as a stablecoin. Apart from USDT, you can also opt to use other stablecoins, such as BUSD, USDC, TUSD and PAX.