The first and most popular crypto stablecoin to ever exist is Tether. A stablecoin mirrors the value of a fiat currency by holding enough amount to back the supply, which gives investors more control over their crypto assets. USDT is anchored to the US Dollars and it plans to anchor to other fiat currencies too. As we all know how unstable and volatile cryptos are, introducing stablecoins as a measure to seek safety was a very welcoming move, but USDT had its fair share of controversies when it first came into existence.
Many people didn’t trust the ways USDT was able to have cash or cash equivalent reserves. Still, investors were relieved to have a stablecoin in the market, since banks didn’t like to get involved in digital currency exchanges because of the level of risk involved. Tethers exist on the Bitcoin blockchain and can be just like Bitcoin for P2P, a pseudo-anonymous, decentralized, cryptographically secure environment.
Tether Limited employs a simple but effective approach for conducting Proof of Reserves and significantly reduces counterparty risk. Since Tethers don’t rely on market forces, they are resistive to market risk events or liquidity crunches.
The high volatility and risk associated with crypto led to the emergence of USDT. Tether whitepaper was first introduced on October 6, 2014, as Realcoin by Brock Pierce, Reeve Collins, and Craig Sellars, a member of the Omni Foundation. This helped them build Tether on Omni Protocol which helped in creating and trading smart-contract-based properties and crypto on Bitcoin’s blockchain.
It was on November 20, 2022, when the CEO of Tether announced that the name of Realcoin would be changed to Tether(USDT). In January 2015, USDT started trading on the Bitfinex exchange platform. Until 2017, all the transactions were happening through Taiwanese banks which were then transferred on to Wells Fargo.
Tether’s international transactions were blocked by US Banks on April 18, 2017, due to transparency issues. There were speculations that the Tether reserves didn’t actually exist and the whole structure would soon collapse. This led to a lot of volatility for USDT holders.
In theory, 1 USDT= 1 USD, which makes it more acceptable and legitimate than many other similar projects. It is widely accepted as a mode of payment and means of exchange by many vendors across different blockchains. It is also capable of performing all the activities as other crypto tokens on the network, which makes it a desirable hedge for traders and users alike.
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USDT has a three-layer stack and various characteristics that are best understood through the below diagram.
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The benefits of Tether stablecoin would undoubtedly be one of the main points of discussion. It’s interesting to note that Tether has certain benefits for individuals, businesses, and exchanges. Here is a list of Tether’s advantages in each of the three categories.
The Tether crypto tokens can open up the functionalities of blockchain-based tokens for individual crypto users without exposing them to volatility. The tether can offer the following benefits to individuals.
Tether pricing can be used by businesses as a focal point for providing clients with a secure and liquid payment solution. Here are a few of the key advantages of Tether for merchants looking to integrate cryptos into their businesses.
Considering that Tether USDT is the most commonly traded asset, it offers promising benefits in powering up the cryptocurrency ecosystem. The advantages of the Tether token for exchanges are as follows.
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In terms of market capitalization, USDT is currently ranked third on coinmarketcap, just behind Ethereum and bitcoin. Its market cap is currently $65, 850,693,765. There is no maximum restriction on the supply of USDT tokens as there is no limit to the number of tokens in custody that are tied to USD.
There are currently 65.84 billion USDT tokens in circulation. In recent years, Tether’s core tokenomics have come under question. Tether states that it keeps enough dollars on hand to back each USDT token with one. However, the company recently settled with the New York Attorney General’s office, which required it to shell out $18.5 million in fines and disclose for the first time a breakdown of its reserves.
Only 2.9% of its reserves were held in cash, according to the breakdown. The rest was composed of various “cash equivalents,” including treasury bills, fiduciary deposits, commercial paper, and reverse repo notes. In actuality, just 75.85% of Tether’s entire reserves were made up of cash and currency equivalents. The remaining components included secured loans, precious metals, corporate bonds, and other digital assets.
Though USDT is the most popular stablecoin out there, it faces tough competition. Some of its competitors are:
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Tether’s launch has provided a significant boost to the crypto domain. It provides stability while guaranteeing the needed liquidity for apprehensive investors about using crypto assets. The Tether token, or USDT, is one of the most well-liked stablecoins and offers a variety of advantages to exchanges, retailers, and individual traders.
Tether has accelerated it’s growth thanks to its backing by fiat money and growing support for several blockchain networks. Most importantly, Tether’s acceptance over the year despite some controversies has fuelled its popularity. Even though the company claims that it has never failed to fulfil a redemption request from any of its customers up to this point, nothing in investing or cryptocurrency is guaranteed.
Users of crypto should also be aware of digital assets’ evolving regulatory landscape. Transparency, the availability of sufficient collateral, and liquidity are all necessary for the future of Tether and other stablecoins.
Use this three-step process to buy your first USDT token using the CoinDCX, crypto investment app.
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Disclaimer: User Generated Content – Original Content created by a member of BITS Pilani, under the consultation of Dr. Amit Dua, Assistant Professor, Computer Science Department, BITS Pilani, Pilani Campus in association with CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Saatvik Mittal, Aman Bansal