What is Tether (USDT)? Explanation and how this stablecoin works
Tether (USDT) is one of the best-known stablecoins (stable cryptocurrencies) in the world. While the value of many other cryptocurrencies fluctuates, Tether is designed to remain close to one US dollar (USD) at all times. This makes USDT an important tool for traders who want to temporarily store value without converting their funds into euros or dollars. Although Tether (USDT) is widely used on exchanges and within the world of Decentralized Finance (DeFi), it is important to understand how this coin works, where its value comes from, and which risks may be involved.What is Tether (USDT)?
Tether (abbreviated as USDT) is a digital currency that is pegged to the value of the US dollar. In theory, for every USDT issued, one US dollar or an equivalent financial instrument should be held in reserve by the company behind Tether. The goal is stability: 1 USDT should always equal 1 USD. The coin was launched in 2014 and has since become one of the most widely used stablecoins in the world. USDT is heavily traded on major exchanges and is commonly used in DeFi applications.In short
- Type of cryptocurrency: Stablecoin
- Purpose: Digitally represent the value of 1 US dollar
- Used for: Trading, storing value, liquidity on exchanges
- Issued by: Tether Limited
- Networks: Available on multiple blockchains, including Ethereum, Tron and Solana
Price and history of Tether (USDT)
The price of Tether is intended to remain stable at 1 USD, but in practice the value can fluctuate slightly, for example between 0.99 and 1.01 USD. This happens due to changes in supply and demand in the market. Tether has been active since 2014 and was the first major stablecoin to be widely used globally. Over the years, the company behind Tether has repeatedly been in the news due to discussions about the transparency of its reserves. Despite this controversy, USDT remains one of the most widely used stablecoins in the world, with a market capitalization of tens of billions of dollars.How does USDT work as a stablecoin?
Stablecoins like Tether are designed to reduce volatility. The value of USDT remains stable through underlying reserves and its peg to the US dollar.The dollar peg and the purpose of stablecoins
The principle of a stablecoin is simple: one token represents one dollar. This makes it possible to trade within the cryptocurrency ecosystem without being exposed to extreme price fluctuations. Stablecoins therefore act as a digital bridge between traditional finance and blockchain technology.Issuance and reserves: how does USDT remain stable?
When users buy or redeem USDT, tokens are issued or destroyed by Tether Limited. The company claims that every USDT is backed by reserves consisting of:- US dollars,
- short-term government bonds,
- or other liquid assets.
USDT on different networks
Tether exists on multiple blockchains, such as:- Ethereum (ERC-20)
- Tron (TRC-20)
- Solana
- Algorand
- Avalanche
What is USDT used for?
In practice, Tether is mainly used in three ways:Trading and “parking” value
Traders use USDT to temporarily secure profits when they do not want to convert directly into euros or dollars. Because the value of USDT remains stable, it can serve as a temporary store of value.Switching between cryptocurrencies without using fiat
USDT makes it easy to move from one cryptocurrency to another without first using fiat currency. This saves time and costs, especially on international exchanges.Use in DeFi and on exchanges
Within Decentralized Finance (DeFi), Tether is used as collateral or to earn yield through lending and liquidity pools. On exchanges, USDT often functions as a trading pair base: many trading pairs are linked to USDT instead of fiat currencies.USDT vs USDC
Tether (USDT) and USD Coin (USDC) are both stablecoins pegged to the US dollar, but they differ in transparency and management.Key differences for users
- Issuer: USDT is issued by Tether Limited, while USDC is managed by Circle in collaboration with Coinbase.
- Transparency: USDC publishes monthly audited reserve reports, while Tether does so periodically and in less detail.
- Usage: USDT is the most widely used globally, while USDC is more popular among regulated institutions and within the United States.
