What is Tether Cryptocurrency (USDT)? A Definitive Guide for Beginners

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by Enoch Omololu

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Tether is the most popular cryptocurrency pegged to U.S. dollars.

Cryptocurrencies are known to be volatile. That means they lack price stability and may experience wide price swings within a short period.

For instance, Bitcoin was just trading at an all-time high of nearly $65,000 in April 2021, but as of this writing, Bitcoin is valued at about $49,326.

A crypto stablecoin offers ways to lock in crypto gains and maintain asset values without moving all your holdings into fiat.

What if there’s a way to convert traditional cash into digital currency and vice versa? That’s where stablecoins, like Tether (USDT) come in.

What is Tether USDT?

Tether is a Fiat-collateralized stablecoin pegged to the U.S. dollar. It’s the native token for the Tether network, trading under the symbol USDT.

Tether tokens are issued by Tether Limited, which is controlled by Bitfinex, a Hong Kong-based cryptocurrency company.

It was founded by Rock Pierce, Reeve Collins, and Craig Sellers.

The Tether coin was originally launched in 2014 under the name realcoin, later renamed USTether, and then finally to USD Tether (USDT).

As of this writing, Tether’s price is $1, and it’s ranked as the fifth-largest cryptocurrency by market capitalization.

Tether has a live market cap of over 68 billion, a fully diluted market cap of $71 billion, and a 24-hour trading volume of more than 64 billion. 

Currently, there are over 68 billion Tether tokens in circulation, but no hard-coded maximum supply. Each tether cryptocoin in circulation is backed by an equivalent amount of fiat currency, in this case, the U.S. dollar, held in a designated bank account.

Unlike most other cryptocurrencies that fluctuate in price, USDT price is usually equivalent to $1. Tether crypto tokens are meant to maintain stability in the crypto market by combining the unrestricted nature of cryptocurrencies with the stability of the U.S. dollar.

Thus, crypto traders can use Tether as a stable alternative to the U.S. dollar to buy cryptocurrencies and as a safe, more stable asset to lock in gains and store value in a volatile crypto market.

How Does Tether Work?

Tether was designed to be a stablecoin that works as a second layer cryptocurrency built on top of Bitcoin blockchain using the Omni and Liquid protocol as its transport layers. 

Tether tokens were later updated to work on the Ethereum blockchain smart contracts and decentralized applications (Dapps), and can be sent to any Ethereum address. 

Tether coins are also available on other blockchains like the OMG, Algorand, EOS, and SLP blockchains. 

Tether’s transport protocols feature an open-source software that interfaces with the underlying blockchain, allowing the issuance and redemption of Tether coins and transactions of tokenized fiat currency. 

Since Tether is a stablecoin, it’s not mined, but new coins are issued and backed on a need basis to meet users’ demands.

What Makes Tether Crypto Unique?

Tether’s uniqueness stems from the fact that all the USDT coins in circulation are supposed to be 100% backed by Tether’s reserves.

Thus, its value is guaranteed to remain pegged to the underlying asset, maintaining a 1-to-1 value ratio. If 10 Tether coins are mined, Tether limited allocates the same amount of U.S. dollars to its reserves.

This helps ensure that the amount of Tether tokens in circulation are fully backed by cash and cash equivalents like commercial paper, fiduciary deposits, treasury bills, and reserve repo notes.

As a result, Tether acts like the missing link that ties fiat currencies to cryptocurrencies, helping solve the stability, transparency, and high transaction cost issues in the crypto space. 

For instance, a volatile crypto market means asset prices can rise or fall by up to 20% or more within a single day, making it hard for investors to store value in the crypto market.USDT helps solve that problem because its price remains stable at  $1.

Having a digital coin that’s equivalent to the U.S. dollar makes Tether a haven for crypto traders and investors in a volatile market. Instead of going through the hassles of cashing out their crypto assets into USD, they can park their portfolio in USDT and quickly jump into other buy and sell opportunities as they arise.

Again, Tether solves the issues of high fees and delays associated with transacting fiat currency across borders. People can easily transact a digital U.S dollar equivalent via blockchain anywhere in the world without relying on intermediaries.

You get the best of both worlds: the uncensored benefits of open blockchain technology and the stability of traditional currencies.

What is a Stablecoin?

A stablecoin is a crypto token designed to lower volatility and maintain price stability in the crypto market. To achieve that, a stablecoin’s value is pegged to external real-life assets, commodities, or references to ensure price stability.

The aim is to solve the unpredictable price swings of popular cryptocurrencies like Bitcoin and Ethereum.

Thus, people can use volatile assets like Bitcoin for speculative investments but use stablecoins as a store of value to lock in gains, or for everyday transactions without losing purchasing power.

Stablecoins come in three types, including:

Fiat-collateralized

These are backed by national currencies like the US dollar, the Euro, Chinese yuan, or commodities like gold. Tether (USDT) and TrueUSD are good examples of Fiat-collateralized stablecoins.

Crypto-collateralized Stablecoins

These are stablecoins backed by other crypto reserves. They can still be highly volatile since their value is pegged to other cryptocurrencies. 

That’s why they are called “over-collateralized” because you need a large reserve of crypto tokens to issue a lower number of stablecoins. For instance, MakerDAO’s DAI is backed by Ethereum.

Non-collateralized Stablecoins

These are not backed by any collateral. Instead of an external reserve asset, they use a mechanism similar to that of a central bank to decrease or increase token supply on a need basis depending on the economic situation. 

Basecoin is a good example of a crypto token that uses a consensus mechanism to regulate supply.

Uses for Tether USDT

Stablecoins like Tether come as good news to overseas investors without bank accounts in the USD, crypto traders who want to park their account with a stable crypto asset, and users who want to trade or transact with a lower fee. 

Top uses of Tether include:

Trading cryptocurrencies: Tether is widely used in crypto trading. It provides liquidity when trading other crypto assets like Ethereum and Bitcoin. For instance, over 75% of Bitcoin trading is done in Tether.

Store of value: Due to its stability, investors use Tether tokens to hedge against volatility and park their portfolios in Tether to lock in gains.

Investment: Tether holders can lend out their Tether coins to crypto exchanges and earn passive income in the form of interest rates.

A digital substitute for dollars: Users can transact USD value anywhere in the world without going through the slow, high-fee process associated with banks and other intermediaries.

How To Stake Tether

If you have Tether tokens, don’t let them sit and collect dust in a wallet. There are no-custodial protocols that will reward you to stake or lend out your Tether coins. 

The top ones include Compound Finance, dYdX, KuCoin, Binance, and Crypto.com. APY rates vary among platforms, but you can expect to earn anywhere between 6% to 50% of staked or lent funds depending on the platform you choose.

Simply create an account on an exchange of choice and deposit coins in your account to start staking or lending your Tether tokens automatically with a single click.

How To Buy Tether in Canada

Tether is the most widely used stablecoin in the crypto industry. Thus, a large number of cryptocurrencies list Tether (USDT) as a viable alternative to USD.

Top exchanges to buy Tether coins in Canada include:

Here’s a detailed overview of how to buy Tether USDT in Canada.

Top exchanges to buy Tether in the United States include:

  • Binance
  • Crypto.com
  • OKEx
  • HitBTC
  • Huobi Global
  • BitFinex,
  • Kraken
  • CoinSpot
  • Cointree

You can also look for a crypto ATM that offers USD/USDT pairs and buy directly from there. Whether you buy via an exchange or a crypto ATM, the process is pretty much the same. Just create an account, load money in it, and start buying Tether coins.

Best Crypto Wallets for Tether

To keep your USDT coins secure and safe, you’ll need a crypto wallet to store Tether tokens that you aren’t actively trading or staking on a platform. Top Tether wallets include:

  • Tether Wallet
  • Ledger Nano X
  • Binance Wallet
  • Omni Wallet
  • MyEtherWallet
  • Cainomi
  • CryptoWallet

Is Tether Safe?

Tether’s price has managed to stay stable at $1 with minor fluctuations. However, things haven’t been all smooth for Tether. Major events to note before investing include:

The 2017 hack: Tether lost about $31 million worth of Tether coins in a 2017 hack, which resulted in a hard fork.

USD-backing controversy: Claims that Tether doesn’t have enough dollar reserves to back Tether coins in circulation remain pervasive. A 2017 audit to verify Tether reserves flopped. Instead, Tether called it quits with the auditors.

2019 Tether lawsuit: Letitia James, the New York Attorney General, accused Bitfinex, Tether’s parent company, of dipping into Tether’s reserves to hide an $850 million loss. They settled early this year and agreed to pay an $85 million fine and stop operations in New York.

Tether and the Future 

Despite past controversies, Tether seems to have managed to slip through unscathed.

Tether tokens continue to be the most popular and widely used stablecoins in the crypto market for trading, making crypto loans, and earning interest ahead of USD Coin, Binance USD, DAi, TerraUSD, and TrueUSD. 

Currently, Tether is ranked #5 among the most popular cryptocurrencies on CoinMarketCap with a market cap of more than $68 billion.

Due to its importance in the crypto space, Tether is likely going nowhere.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, Credit Canada, MSN Money, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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