For many investors, these unpredictable changes in value can present an opportunity for significant returns. However, some individuals may find the potential for losses to make cryptocurrency assets seem overly risky.
While the most popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) garner the majority of attention in the crypto space, one notable drawback is their susceptibility to substantial price volatility.
To address the issue of these significant value swings, stablecoins were introduced as digital assets aiming to maintain a steady price.
In this educational piece, we will delve into this category of digital currency and focus on USDT, one of the most widely used stablecoins in the current market.
What is USDT?
USDT (Tether) is a cryptocurrency that aims to maintain a 1:1 exchange rate with the US dollar, created and first issued in 2014. USDT is a fiat-backed stablecoin, meaning that it is backed by a reserve of assets.
What problems does USDT solve?
At the time USDT was launched, Bitcoin and other early cryptocurrencies could only be exchanged for other cryptocurrencies or fiat currency — there was no easy and fast way for crypto holders to trade crypto for fiat currency (or vice versa) without altogether exiting the crypto ecosystem.
USDT was created in a bid to bridge this gap, giving users seamless access to a platform-agnostic, blockchain-based fiat-backed stablecoin pegged to the U.S. dollar that held many of the technical advantages of Bitcoin, Ether, and other crypto assets, without having their volatility.
USDT introduced a less volatile option to an asset-class that historically fluctuated broadly against fiat currencies, enabling traders to quickly move into a more “stable” asset, fund USD-denominated margin accounts, and quickly complete transactions between exchanges.
In creating USDT, Tether also solved one of crypto’s most elemental challenges — that the volatility of cryptocurrencies restricted their real-life utility in a fiat-denominated world. Instead, USDT gave anyone a permissionless way to send crypto to anyone with speed, transparency, and low cost, opening up the use case of cryptocurrencies to remittance transactions, payments, and more.
How does USDT (Tether) work?
While USDT was originally issued on top of the Bitcoin network via the Omni Layer, but is now traded on a total of seven blockchain protocols including Ethereum, Tron, EOS, Algorand, Liquid Network, and Bitcoin Cash, in addition to Bitcoin.
The company behind USDT, Tether Limited, mints and removes the stablecoin from circulation according to their dollar reserves — Tether claims to maintain a 1:1 reserve ratio of USDT to the assets backing USDT. This reserve is maintained by Tether Limited as an effort to allow USDT to trade at the same value as the US dollar.
Who created Tether?
USDT is issued by Tether Limited, a Hong Kong-based company founded in 2014 by early cryptocurrency proponents Brock Pierce, Reeve Collins, and Craig Sellars.
In 2021, Tether Limited settled a years-long legal dispute with the New York Attorney General, which alleged the USDT creator had historically misrepresented the amount of US dollars it held in cash reserves.
What can USDT be used for?
For individuals, USDT allows anyone to transact in a cheap, fast, and peer-to-peer way. Additionally, the token can be used to earn interest via decentralized finance (DeFi) protocols.
USDT also gives merchants a way to accept cryptocurrency payments, where it is legal to do so, in a crypto asset that is pegged to USD, without the need for taking on the volatility associated with accepting payments in other cryptocurrencies.
Did you know? You can pay with USDT
What are the risks of USDT?
Like all cryptocurrencies, USDT is susceptible to risks. Some of these include DeFi platform or smart contract hacks, rug pulls, general crypto scams, as well as impermanent loss when using USDT in decentralized applications (dApps).
Tether, the parent company of USDT, has faced scrutiny over the years regarding their reluctance to publish consistent audits of their reserves, as well as concerns about the backing of the stablecoin itself.
Before choosing to invest in USDT, users should do their own research. This may include researching the price history of a particular coin, the team behind a crypto project, or the backing company of a stablecoin and their reserves.
How can you buy USDT?
Just enter the amount of USDT you wish to purchase and follow the steps to complete your order.
How can you sell USDT?
MoonPay also makes it easy to sell USDT when you decide it's time to cash out. Simply enter the amount of Tether you'd like to sell and enter the details where you want to receive your funds.