What is Tether (USDT)?
What is Tether (USDT)?
Tether (USDT) is a cryptocurrency based on a blockchain network. It is tied to the US dollar having a 1:1 relationship. This means that coins circulated in the market have equal value in fiat currency. In other words, they are actual dollars kept in reserves at financial institutions as collateral. USDT is not just used for investment purposes, but also used as a medium of exchange and mode of storage.
Understanding Tether (USDT)
Tether is part of the less volatile asset category of cryptocurrencies known as “stable coin”. The main purpose of stable coins is to keep cryptocurrencies stable, as opposed to high fluctuating cryptos like Bitcoin and Ether. Additionally, Tether can be used as a digital dollar and is backed by physical reserves whose value will always be equal to or greater than the amount of Tether issued – 1 Tether = 1 USD. However, no guarantee is given by Tether Ltd in terms of valuation and cannot be exchanged for US dollars.
These reserves may be held as a combination of currency and cash equivalents, and from time to time may include other assets and receivables from loans made by Tether to third parties. Unlike other fiat collateralized currencies like USD coins, (USDC) Tether does not conduct regular audits to confirm that the value of these reserves matches the amount of Tether in circulation.
Although BTC remains number one in terms of market cap, Tether has surpassed it as the most frequently traded cryptocurrency. According to a study conducted by CryptoCompare, most of the Bitcoin trading is done in USDT, and in Feb 2021 alone, BTC to USDT trading was 57%. This is because Tether is the main source of liquidity for the crypto market.
Additionally, according to CryptoQuant, the stable coins holdings on global crypto exchanges hit an all-time high on 28th March 2021, surpassing $10 billion. Further, the total trading volume of all stable coins is estimated at $88 billion. The stable coin market is mostly dominated by Tether and the holdings across all exchanges indicate potential buying power.
Key Features
Exit Strategy
In the crypto market, the main concern is market volatility. When there is a bear market, investors have extremely limited options, so either they sell their holding in exchange for fiat, which is a time-consuming and costly process, or they take the losses by riding the bear market out. The third option is to convert the holding in Tether and avoid the fees and volatility.
Frictionless
Since Tether is a blockchain asset, the conversion of any cryptocurrency into Tether is extremely easy. This is a frictionless way for investors to escape volatility by staying in the crypto market.
Accountability
The major advantage of using Tether as a means of payment is accountability. Businesses that use cryptocurrencies to pay for goods and services are often left to estimate the value against the US dollar. However, with Tether this issue is resolved because stable coins always equal their fiat counterparts in value.
International transactions
Cryptocurrencies have revolutionized international transaction systems, and Tether is no different. USDT can easily be transferred around the globe without converting funds or paying hefty transaction charges.
Transit Cryptocurrency
Tether helps in facilitating the transfer of real cash to digital cash, but in some areas of the world this is a difficult task, and for some it is illegal. For all such regions, Tether is the best alternative.
High Liquidity
Tether deals directly with fiat currencies that help exchanges reduce the amount of KYC and AML regulations. Thus, Tether provides exchanges with increased liquidity.
Conclusion: What is Tether (USDT)?
Tether is the most unique and distinctive coin in the crypto market. It provides immense stability that makes exchanges smooth and convenient. Additionally, it creates an eco-system with transparency, liquidity, and minimal transaction fees to users. If you are looking for a digital currency that can serve both the functions of medium of exchange and value storage then Tether (USDT) can be your option.
