What is Tether? Ultimate Guide to Tether Cryptocurrency

Founded in July 2014 by Brock Pierce, Craig Sellars, and Reeve Collins, Tether was the first blockchain-enabled platform to use a stable accounting unit based on the US Dollar. Cryptocurrency exchange Bitfinex initially developed Tether as a stablecoin as a way to incentivize peer-to-peer transactions without exposing users to additional volatility risks. As part of the settlement, Tether was required to release regular reports on its business, including details of its funds held as reserves. Of the 76%, commercial paper and fiduciary deposits made up 65% and 25% respectively; the figures indicated that less than 3% of Tether’s reserves were held in cash.

Every Tether token is 100% backed by our reserves, which includes traditional currency and cash equivalents, and may include other assets and receivables from loans made by Tether to third parties. All Tether tokens (USD₮) are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves. Of course, USDT still faces key challenges like counterparty and manipulation risks, mainly because of its centralized framework. These are challenges faced by all stablecoins; especially those backed by reserves. And it’s not like stablecoins pegged to assets without reserves are favorable over fiat or commodity-backed stablecoins either.

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These loans are secured by assets that are worth more than the loan amount, and they are subject to margin calls if the value of the collateral drops below a certain level. With over $60 billion worth of USDT already in circulation, Tether is one of the most valuable https://www.tokenexus.com/ cryptocurrencies in the world. Even with compelling alternatives available, most digital currency traders have stuck to Tether, at least for now. Cryptocurrencies such as Bitcoin and Ethereum are often designed with a particular purpose or use-case in mind.

• This could also have a cascading effect, where negative sentiment surrounding the token could cause the valuation to drop below even the amount held in reserve.
• As noted above, in practical terms, stablecoins have made it easier to speculate in cryptocurrency markets.
• As a standard ERC20 token it can also be sent to any Ethereum address.
• By registering at HitBTC, you will have opportunities to store your wealth in both USDT, USDC, and myriad altcoins.
• In the pioneering age of cryptocurrency, Tether Limited’s USDT emerged as a game-changer, initially dubbed Realcoin back in 2014.

• Tether Limited Inc., incorporated in Hong Kong in 2014, is the company that launched and operates the Tether platform and issues the Tether tokens. Whether you can tether or not, and to what extent, depends on the network you’re on and the specific contract you’re signed up to. Note that you may not even need to select a network name and password if you don’t want to – the former may already be entered and if you’ve used tethering before the latter might be as well.

Didn’t Tether get into trouble recently?

To explain, all USDT that has ever been issued is backed by reserves controlled by one centralized company. Although they are often used interchangeably, it’s important to note that Tether and USDT are two different things. Tether is a centralized body what is tether issuing stablecoins, one of which is USDT. But besides USDT, Tether also issues a range of other fiat and commodity-backed stablecoins. The most popular of all stablecoins so far is USDT, a stablecoin pegged to and backed by the United States Dollar.

The rest of the holdings were in commercial papers which are a form of short-term debt. Furthermore, there are reports Tether had exposure to Evergrande Chinese commercial papers despite the company stating otherwise. In this tutorial, you saw What is Tether, its concepts, how tether works, and can we buy it.

How stable are stablecoins?

We don’t know whose commercial paper Tether is holding, and that’s a little weird. I asked the company directly and the spokesperson’s written response was, “We are a tech company and we closely guard our counter-party relationships. At this time, we do not disclose the make-up of our commercial paper holdings.” That is… unusual. As long as Tether Limited is able to maintain enough dollars in reserve and redeem institutional requests for fiat, USDT coin will continue to trade at $1. Despite this, the coin’s stability has helped it to maintain its lead over competing stablecoins, especially after showing its resilience in the aftermath of the collapse of UST, an algorithmic stablecoin, in mid-2022. In 2021, following concerns about Tether’s unwarranted exposure, Tether showed that the company had only 2.7% of their entire treasury in cash.

That said, crazy market cycles make a lot of cryptocurrency assets impractical for everyday purchases. For example, your Bitcoin may be a great way to store value long-term, but as a short or mid-term medium of exchange, it can be slightly more challenging. The transaction fees can be unpredictable, as can the price of the coin itself due to market volatility. In the settlement agreement, the office of the attorney general found that Tether had no reserves to back the stablecoins in circulation for periods of time.

Supposedly backed by the country’s oil and precious metals reserves, the Petro failed due to a general lack of faith in the Venezuelan government. Consequently, you can more or less take Tether’s cryptographic security for granted as the tokens themselves cannot be counterfeit or hacked. Most USDT tokens now live on the Ethereum blockchain, which is universally regarded as secure and tamper-resistant. However, what is much less concrete is Tether Limited’s claims of having adequate dollar-based reserves for every single USDT token it has issued to date. One good reason to own a stablecoin such as USDT, Bumbera says, is if traders want to keep their money in crypto while avoiding some of its volatility. But even staked to the US dollar, Terra is far from a safe investment.

• I asked the company directly and the spokesperson’s written response was, “We are a tech company and we closely guard our counter-party relationships.
• Historically, such substantial minting events of Tether (USDT) have strongly correlated with noteworthy Bitcoin price surges.
• USDT tokens can be purchased on nearly all cryptocurrency markets including Binance, Kraken, Coinbase, and many others.
• As part of the settlement, Tether was required to release regular reports on its business, including details of its funds held as reserves.
• Despite stablecoins being a popular choice among some crypto traders, Tether has some additional controversies regarding liquidity issues and whether its reserves are adequate to cover the number of USDT tokens in circulation.
• As we learned earlier, Tether was originally conceived of and named Mastercoin and Realcoin.

“Tether, being the largest, would jeopardize all but the most transparent of stablecoins,” Mizrach says. Gemini would likely benefit from a failure of Tether, though, and USDC could, too. “At this time, we do not disclose the make-up of our commercial paper holdings,” Tether’s spokesperson said.