USDT (Tether)

What is USDT (Tether)?

USDT (Tether) is a 1:1 US dollar-backed stable coin. Its role is to provide stability to the world of cryptocurrencies by mitigating the impact of volatility. USDT is owned by Tether Limited and has reserves in fiat currencies, securities, and other assets backing it.

The USDT stablecoin is one of the most influential cryptocurrencies in the market, as it can move money quickly across exchanges, hedge volatility risk, and circumvent banking restrictions in various countries.

USDT History

Tether was developed in 2014 as Realcoin but eventually renamed to USDT. It initially was based on the Bitcoin blockchain using the Omni Layer but eventually came on the Ethereum (ERC-20), Tron (TRC-20), Solana, Avalanche, and other blockchains.

Though widely used, USDT has long been faulted for the obscurity of its reserves. Tether Limited only made public its composition in 2021, and now it's evident that the token is collateralized not only by dollars, but by other financial products as well.

How USDT is backed and issued

Every newly minted USDT is created by injecting an equivalent amount of US dollars into Tether Limited reserves. In theory, this should imply that there can never be more coins in circulation than reserves. Nevertheless, there are no periodic independent audits of the company, and this creates suspicions in the community about full backing of tokens.

The main assets backing USDT:

• Fiat currencies (euros, dollars, and others);
• Short-term securities (commercial paper and bonds);
• Cryptocurrency assets.

How and where to buy USDT

USDT can be found on almost any cryptocurrency exchange. It is acquired either with fiat or exchanged for other cryptocurrencies.

Popular locations to buy USDT:

• Cryptocurrency exchanges (Binance, OKX, Bybit, Bitget);
• Exchangers (BestChange, Changelly);
• P2P platforms (Binance P2P, LocalBitcoins);
• ATMs and cryptocurrency cards.

USDT is the most liquid stablecoin and easily exchangeable for fiat.

How to store USDT

There are different cryptocurrency wallets to store USDT in, including:

• Hot wallets (MetaMask, Trust Wallet) - convenient for random transactions, but they can be hacked.
• Cold wallets (Trezor, Ledger) - best protected.
• Exchange wallets - convenient for exchanges, but it is possible that an exchange gets hacked or that an account is blocked.

USDT advantages

1. Stability - being pegged to the US dollar removes volatility.
2. High liquidity - note wide use on cryptocurrency exchanges.
3. Fast settlements — settlement in a few minutes.
4. Low fees — especially in Tron (TRC-20) and Solana networks.
5. Multifunctional — traded, utilized in DeFi, and for settlement.

USDT Disadvantages

1. No yearly audits — coin collateralization has been contentious.
2. Centralization — token issuance and freezing are under the control of Tether Limited.
3. Regulatory risks — case against the company by the United States.
4. Wallet blocking and freezing — centralization allows the company to freeze wallets.

How is USDT mined?

USDT is not mineable, in contrast to Bitcoin and Ethereum. Its release is completely in the hands of Tether Limited, and new tokens are released as fiat reserves are transferred.

Usage of USDT in the real economy

1. Trading — utilized as the main unit of account on cryptocurrency exchanges.
2. International transfers — utilized by numerous firms to circumvent banking restrictions.
3. Decentralized finance (DeFi) — staking, lending, and yield farming.
4. Payments — utilized by a few stores and services as a payment.

Alternatives to USDT

Although Tether is the dominant stablecoin, there are others:

• USDC (USD Coin) — less restricted, audited on a regular basis.
• DAI — decentralized stablecoin on Ethereum.
• BUSD — previously issued by Binance, but stopped issuing under regulatory pressure.

The future of USDT

Despite the regulatory heat, USDT is still a market leader for stablecoins. Tether can further extend its use in future international payments and DeFi. Competition from clearer stablecoins (USDC, DAI) will, however, become stronger.