Tether (USDT) is a popular stable coin that helps investors reduce the market’s volatility. Tether is available across most exchanges and is the most used cryptocurrency for fiat-crypto exchanges. However, how does USDT achieve such stability in the notably erratic cryptocurrency industry?
We’ll see below. This article will answer questions on what Tether is, how it works, and its advantages and disadvantages.
What Is Tether (USDT)?
Tether is a cryptocurrency network that ties the value of its coins to the value of the specific fiat supporting it. Fiat currencies (for example, US dollars, euros, and pounds sterling) are typically more stable than cryptocurrencies may ever be. USDT is associated with the US dollar, which means that every USDT token has the same value as one dollar.
The same applies to other Tether tokens, such as CNH₮ (Tether Chinese Yuan) and XAU₮ (Tether Gold), according to the fiat affiliation they keep. Tether serves as a means of exchange and storage — aside from the traditional functions of cryptocurrencies as speculative.
Understanding the Tether Network
Tether LTD is the owner of the Tether network. The enterprise is responsible for accepting fiat deposits and withdrawals on clients’ behalf and for minting and burning Tether tokens according to the administered reserves.
Tether originally started on the Bitcoin blockchain through the Omni Layer protocol, trading and creating digital assets on the network. With this mechanism, Tether may create and destroy tokens using the amount in custody. The Omni Layer protocol keeps track of Tether circulation.
The reports of Tether’s transactions are available on the Bitcoin blockchain — courtesy of Omni Layer. Users track their confirmed trades through Omni Explorer. Tether was also listed on a notable Bitcoin sidechain, Liquid, as of 2020.
The Tether network has incorporated various other blockchains, notably Ethereum, Tron, and EOSIO. This development allows these blockchains to mint new assets natively. Ethereum remains the largest USDT market, as it stands.
Tether’s Use Case
USDT represents US dollars on cryptocurrency blockchains. It is commonly classified as a stablecoin — a group of cryptocurrencies that prioritize price stability and are supported by a reserve asset. Tether LTD issues USDT as IOUs (I Owe Yous), an acknowledgment that they owe you the dollars you invest. Whoever invests has their dollars deposited at Deltec Bank in the Bahamas.
- Tether has solidified its blockchain roots, having established itself on nine public ones currently, including Bitcoin Cash, Algorand, Ethereum, EOS, Bitcoin Omni & Liquid, Aolanay, and OMG Network. This expansion ensures that Tether is usable on the most popular cryptocurrency blockchains.
- Holders of USDT may spend this coin without waiting on third-party permission, thanks to their private keys. Anyone with access to public blockchains may audit Tether transactions. Furthermore, the US dollar’s stability helps regulate USDT, limiting the crypto space’s volatility. Also, this dollar association ensures that investors may use USDT as collateral in DeFi and conduct arbitrage trades when asset prices differ, according to the platform.
- In conclusion, Tether (USDT) reduces the volatility risk in the cryptocurrency industry, diversifies protocol risk, and limits exchange risk since holders may exchange across all platforms. Tether enjoys the cryptographic guarantees of blockchain-recorded and digitally held assets.
Advantages of Tether
Tether is different from typical cryptocurrencies. This implies that it offers benefits that aren’t achievable with coins like BTC and ETH.
- Absence of Volatility: Tether conveniently avoids volatility, ensuring that demand doesn’t affect the coin’s value. One Tether token would be equal to $1 in most cases.
- Several Blockchains: Tether has established itself across at least nine public blockchains. What does this mean? You may trade the coin across all these networks. Take Ethereum and Solana, for example.
- As Beneficial as Bitcoin and Altcoins: Despite the absence of volatility, USDT fulfills nearly every function of a cryptocurrency. What’s better? USDT holders may enjoy relatively affordable transaction fees and improved security. In addition, traders may use it to store the value of their cryptocurrencies whenever they are bothered about prices falling. This is because Tether retains your cash by maintaining a stable price, unlike cryptocurrencies that may decline unexpectedly.
- May Access All Exchanges: Some crypto exchanges don’t allow fiat transactions. Fortunately, USDT supports borderless payments and may be traded on such platforms. Users don’t have to use cash. Also, the costs are remarkably low to cash out USDT for fiat on the Tether network.
Disadvantages of Tether
Few cryptocurrencies are without shortcomings. Let’s see some Tether limitations that may discourage users.
- Non-transparent Audits: Tether transactions are auditable on Omni Layer, but the company itself has failed to give a full public audit. Its last audit in 2017 wasn’t comprehensive, and there are no talks of a new audit yet. Currently, there isn’t a complete professional public audit of Tether’s dollar reserve.
- Anonymity Issues: Every transaction on the Tether website requires account confirmation and verification. Ultimately, the promised anonymity is lost.
- Centralized and Trust Dependent: Tether may claim a decentralized network, but the company and its dollar reserve are centralized. Furthermore, the whole 1:1 Tether arrangement depends on the company’s capability and willingness to maintain the ratio.
- Dependent on Third Parties: Tether’s ability to keep functioning depends on the company’s relationship with banks and legal authorities. Therefore, Tether has to strive to maintain a good relationship with these institutions at all times.
How to Trade Tether (USDT) Automatically
Trading USDT profitably significantly depends on your trading resources. As such, automated trading systems such as Obolon9 are recommended. Obolon9 surveys the market and alerts you of movements in the parameters you’ve set. This system helps traders make timely decisions with ease.
Tether (USDT) is a stablecoin that holds a 1:1 value with the US dollar. The coin is free of the extreme price swings that characterize cryptocurrencies. Yet, it performs nearly every function of traditional cryptocurrencies, like BTC, ETH, and LTC. USDT is great for storing value when traders are worried about volatility. In addition, Tether facilitates trading across nearly every cryptocurrency exchange, thanks to its incorporation into the most used blockchains.