Investing in Tether

By   |   Verified by David Boyd   |   Updated 1 Sep 2022


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What if you could own a crypto version of the US Dollar? It would be a stable coin where each 1 USD is worth 1 USDT. It would not be volatile like all other crypto coins and tokens. That's the idea behind Tether (USDT). The stablecoin that changed the way cryptocurrencies have been perceived, acting as a fairly stable bridge to get money from fiat currencies into crypto.

What is Tether?

Tether (USDT) is a fiat-collateralised stablecoin. This means that each Tether token in circulation is backed by the US dollar.

Founded in 2014 by Brock Pierce, Reeve Collins, and Craig Sellar. Though Tether has been the subject of much criticism over the years, it has become one of the most traded cryptocurrencies in the world.

Its tokens are issued by Tether Limited, a Hong-Kong company controlled by Bitfinex – so you need to keep an eye on those companies.

Despite the unprecedented surge in the popularity of USDT, many events surrounding Tether have shown that it goes against the doctrine of decentralised blockchains.

Nonetheless, it is the oldest and most trusted stablecoins in the crypto world. USDT is listed on almost all crypto exchanges globally.

As a matter of fact, the average daily trading volume of Tether often surpasses that of Bitcoin and Ethereum.

What is Tether (USDT) used for?

Tether is very useful for remitting money over the internet lightening fast, with very low fees compared to using the conventional banking system.

If both parties have a crypto wallet then USDT can be sent back and forth.

Stablecoins such as Tether USDT are also heavily used for crypto staking, giving solid and predictable returns to stakers.

How does Tether work?

As Tether aims to keep its reserves stable, it provides opportunities for crypto investors and speculators who want to avoid the volatility associated with other cryptocurrencies. While Tether originally used a technology called Omni Layer, it later switched to blockchain.

Are there any weaknesses to Tether?

Yes, of course there are weaknesses. People criticise governments, central banks, policy makers and high street banks every day. With crypto it's no different.

Tether initially claimed that USDT's price was pegged $1 USDT to $1 US Dollar. However, it has come to light that each token was actually backed by $0.74 in cash and cash equivalents. The company also revealed that about 65% of Tether tokens were backed by commercial paper and only 2.9% were backed by cash.

Tether was marketed as a bridge between fiat currencies and crypto currencies, allowing crypto-to-fiat and fiat-to-crypto transactions with minimal charges, transparency, and stability.

However, Tether Ltd. has not assured any right of redemption of Tether with fiat equivalent. While it may be pegged against the US Dollar, there is no guarantee that it maintains a one-to-one value ratio with the fiat currency.

Stablecoin issuers like Tether could run out of fiat US dollar reserves backing it if the crypto market piled into it during a market shock, but they can't run out of their own USDT tokens. This would put pressure on the peg either upwards or downwards causing volatility.

Furthermore if the Tether Ltd company or its founders do anything to erode trust the USDT coin will lose trust in the project and its market dominance would slip.

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