Adding Tether to TRASTRA’s list of supported stablecoins is a move as organic as featuring Bitcoin on an exchange or rooting for Ripple in the infamous saga. It’s just the thing to do, and we apologise to those who can’t wrap their minds around the question of why haven’t we done this sooner. Let’s leave the tetherless times behind and focus on the fact that the number one stablecoin by market capitalisation and trading volume is now available on TRASTRA. But let’s take it from the top. The following is everything you need to know about Tether (USDT)
Cryptocurrencies are often created with a singular purpose in mind. Tether (USDT) is no exception. It is a digital currency devised to trade on par with the US dollar. By design, Tether has no utility or function other than having its value pegged to the dollar. In fact, Tether was the very first token to be called stablecoin.
Let’s deep-dive into the inner workings of Tether, why it has grown in popularity, and when is a good time to use stablecoins instead of fiat currencies.
The basics of stablecoins
Before chopping Tether for parts, here are a few standard cryptocurrency terms you might want to remember:
Stablecoin: a cryptocurrency token intended to maintain a 1:1 peg with a particular asset or fiat currency. Since Tether is tracking the US dollar, it will always trade at $1.
Blockchain: essentially an immutable ledger of transactions distributed across a network of computers (nodes) globally. Some blockchains (Ethereum, for example) allow users to attach a “smart contract” (ultimately, a data set) to each transaction. Since transactional data can never be altered once registered, developers can build entire apps or on top of blockchains.
Decentralisation: cryptocurrencies are decentralised, which means they are not controlled by a single entity, such as a government. The network is administered by individual users who ensure that no single party or organisation can assume control.
So, what is Tether and how does it work?
In the highly unstable Cryptoverse, Tether offers a standard unit of account that is harmonious with the rest of the digital ecosystem. Like any other cryptocurrency, USDT can be stored in different types of software wallets, exchanged for goods and services at the point of sale that accepts it, and transferred between individuals and organisations.
Launched in 2014 as ‘Realcoin,’ Tether was the world’s first stablecoin. Its developers operated on the foundational idea of having a Bitcoin-like digital currency whose volatility would be greatly reduced by the constantly maintained peg to a reserve currency. As indicated in the token’s original white paper, Tether is meant to carry over the benefits of traditional cryptocurrencies. This includes functions such as borderless transactions and the capacity to trade without a third party involvement.
Tether is essentially a very simple cryptocurrency. Instead of building their own network, Tether’s developers used the Bitcoin blockchain as the basis. As the project’s original white paper indicates, “Tethers exist on the Bitcoin blockchain rather than a less developed/tested ‘altcoin’ blockchain nor within closed source software running on centralised, private databases.”
How is Tether’s constant peg to the dollar maintained?
Simply put, Tether is backed by a centralised reserve that holds assets to back up the token’s value. This 1:1 pairing is what maintains Tether’s price in the open market.
In Tether’s case, the reserve is held in a bank account where actual cash is held as collateral for the issued tokens. However, as of September 2021, 68 billion USDT tokens are in circulation. Naturally, it’s difficult to expect Tether’s reserves to hold $71 billion (Tether’s FDNC) worth of cash. Even Apple, one of the world’s most valuable companies, only maintains around $204 billion in liquid cash (which presents a huge problem for Apple’s investors).
Instead, Tether’s reserves only cover a small percentage of cash, while the rest is commercial paper, treasury bills, or other investments.
In theory, any USDT holder could request to redeem their tokens against actual US dollars. In reality, however, the tokens are only purchased and redeemed by large cryptocurrency exchanges. These transactions are normally worth millions, so end-users are left with the option to buy and sell their tokens on these exchanges.
To sum up, stablecoins are unlike conventional cryptocurrencies as they are not speculative investments. The concept of a 1:1 reserve makes them inherently stable and immune to price swings.
However, there is some risk to “hodling” Tether or any other stablecoin. If the reserve assets default or cease to exist, the peg against the US dollar could collapse, which would have a cascading effect causing the valuation of the coin to drop below the declared reserve limits.
Is Tether a one-of-a-kind cryptocurrency?
One could say that Tether’s philosophy is unlike most cryptocurrencies on the market today because it is highly centralised. Tether Limited, the company that invented the Tether, has also been scrutinised for its lack of transparency on multiple occasions.
Still, Tether does share its properties with any established cryptocurrency – the tokens have been issued on eight different blockchain platforms over the years (Bitcoin, Ethereum, Tron, and others). However, most USDT tokens now live on the Ethereum blockchain, which most view as secure and tamper-resistant.
The use case for Tether and stablecoins at large
A popular use case for stablecoins involves cryptocurrency trading. If you need to liquidate your Bitcoin or altcoin during a crash, stablecoins such as Tether offer a quick and stable substitute to the US dollar. With Tether, you don’t have to rely on slow and expensive bank transfers where your funds may be tied up for several days at a time.
Despite its shortcomings, Tether has managed to streamline the global cryptocurrency trading industry. More specifically, it improved liquidity across many cryptocurrency exchanges. This is especially true in international platforms such as Binance, which cater to traders from dozens of countries. By using USDT-based trading pairs, exchanges aren’t forced to create a new fiat-specific market for each and every cryptocurrency.
For example, a Thailand trader can use the BTC/USDT pair to trade with someone from Argentina or Nigeria without even knowing it. Standardisation with stablecoins such as Tether ensures that a particular cryptocurrency’s liquidity isn’t split up into multiple regional trading pairs like BTC/EUR, BTC/USD, BTC/AUD, and so on.
However, Tether is not the only stablecoin in existence. If you spent any amount of time on TRASTRA, you know of at least one other – USDC. In fact, there are hundreds of digital tokens pegged to the US dollar, euro, or some other fiat currency. They all provide the same underlying functionality, so why does Tether continue to grow while most of its competitors remain stagnant?
The answer is rather straightforward. Similar to Bitcoin, Tether enjoys an unparalleled early mover advantage. The token has existed for over half a decade at this point, which means that almost everyone recognises it and is willing to trade it in exchange for other cryptocurrencies.
TRASTRA offers one Tether alternative so far
Behold USD Coin (ticker USDC), which is no different from the concept of Tether. Both are designed to trade at one US dollar. However, unlike Tether, USDC is backed by the US-based payments giant, Circle whose reputation is stellar and reserves are verified by multiple entities. While Circle is also a centralised solution, cryptocurrency enthusiasts view it as a much more faithful proponent of crypto values than Tether. Which one to pick? The answer to that can only come from experience and the specifics of your future trades.
How reliable, safe, and secure is Tether?
With almost $70 billion worth of USDT already in circulation, Tether is one of the most valuable cryptocurrencies in the world. Even with compelling alternatives available, most digital currency traders have stuck to Tether, at least for now.
If you’re a frequent cryptocurrency trader, chances are you will have no option but to trade with USDT unless the exchange has enough liquidity for your fiat currency. Furthermore, most high-profile exchanges still have limited support for stablecoins other than USDC and USDT.
Tether has managed to maintain its 1:1 peg to the US dollar in recent years except for a handful of rare instances. This means that traders and exchanges have had no practical reason to switch over to a different stablecoin.
Still, alternative stablecoins began surging in popularity of late — especially on decentralised finance platforms such as Uniswap. Furthermore, institutional and accredited investors will likely gravitate towards more reputable stablecoins. While Tether will likely continue to be prevalent in the years to come, its overwhelming dominance may finally diminish.
Tether can be purchased on just about any cryptocurrency exchange — in exchange for fiat or cryptocurrencies. However, before you buy some, keep in mind that USDT tokens are not insured. If a cryptocurrency exchange loses your tokens to a hack or Tether loses its peg overnight, your money will be irrevocably lost. To that end, do your due diligence before purchasing, just as you would for any other investment.
Frequently asked questions
Q: Can I redeem Tether’s USDT tokens for actual US dollars?
A: Theoretically, yes. However, Tether Limited only works with large institutions and companies such as cryptocurrency exchanges. If the amount you’re looking to exchange is worth less than $100,000, you’d be better off simply exchanging your tokens on TRASTRA for free and getting hard cash to spend on your real-world needs
Q: Has Tether ever lost its peg against the US dollar?
A: Tether has indeed lost its peg on more than one occasion during its early years. Of late, however, growing adoption and widespread recognition have allowed the peg to maintain equilibrium at $1.
Q: Why does Tether trade at a premium on some exchanges?
A: Some regional exchanges can have Tether trading at $1.1 per token instead of $1. This can be due to the imbalance between supply and demand, where traders pay a premium for a small, shrinking local supply. The mismatch is especially prevalent in areas where US dollars are typically difficult to come by, like in the case of many developing countries.
In these scenarios, international investors usually can profit from arbitrage — which involves buying tokens at $1 and selling them for a higher value on smaller exchanges.
Q: Which wallet do I need to use for Tether?
A: Easy. Since Tether does not use its own blockchain and lives on some of the largest chains in the world, the wallet you need to use depends on the exchange you withdraw from.
Certain exchanges, like Binance, will allow you to withdraw your USDT tokens on a blockchain of your choice. For now, the ETH-based Tether (also known as USDT-ERC20) appears to be the de facto blockchain. To that end, you can use any Ethereum wallet to store your USDT tokens, and TRASTRA is a perfect choice.