What is Tether (USDT)?
Tether (USDT) is categorized as a “Stablecoin,” a type of cryptocurrency engineered to maintain a consistent price level. Created by Tether Limited, USDT serves as the digital equivalent of the US dollar on the internet, with each token valued at $1.00 USD and backed by an equivalent amount of physical reserves. This stability makes (USDT) a popular choice among millions of blockchain users for trading, hedging, and conducting transactions across various blockchain networks, all without relying on a trusted third-party intermediary.
Despite its widespread adoption in cryptocurrency markets, (USDT) has encountered controversy stemming from allegations regarding its involvement in manipulating the price of Bitcoin and mismanagement of reserves.
If you’re intrigued by Tether (USDT) but uncertain about where to begin or what it entails, fret not. This guide is tailored to furnish you with comprehensive insights into the project, equipping you with the knowledge needed to embark on a seamless and user-friendly trading experience, ensuring you’re well-prepared to navigate the cryptocurrency landscape.
How does Tether work?
USDT is a cryptocurrency token issued across various major blockchains, aiming for each unit of Tether (USDT) to be exchangeable for $1. To achieve this, Tether Limited, the issuing entity, maintains reserves to support the tokens it generates.
In theory, for Tether (USDT) Limited to create 1,000 USDT, it must possess $1,000 in reserves, ensuring that holders can redeem their tokens for their equivalent value. However, the practical application of Tether’s model is more complex, with concerns arising over the trustworthiness of Tether Limited regarding its reserves. Initially, the company asserted that each USDT was fully backed by $1. However, subsequent revelations contradicted this claim.
In 2019, a legal representative for Tether Limited stated that 74% of USDT tokens were backed by cash or cash equivalents. Yet, when Tether Limited disclosed a breakdown of its reserves in 2021, only 2.9% of USDT tokens were backed by cash, while the remaining reserves comprised secured loans, corporate bonds, and commercial paper.
In summary, Tether Limited maintains that all USDT tokens are 100% backed by its reserves, which encompass a variety of assets beyond cash. However, it’s important to note that there is no legal guarantee ensuring the redemption of a USDT token for $1.
Is Tether a Good Investment?
Stablecoins like Tether are not typically viewed as investment assets because they are designed to maintain a stable value, with one USDT always equaling one US dollar. Instead, they primarily serve as a store of value and facilitate simpler business transactions compared to Bitcoin.
According to Bumbera, the inherent volatility of Bitcoin makes it challenging for companies to establish pricing schemas based solely on BTC. In contrast, stablecoins like USDT offer stability, which can be advantageous for those seeking to keep their funds in cryptocurrency while avoiding price fluctuations.
However, Bumbera also highlights the risks associated with stablecoins, such as Tether, including the potential loss of value or the legitimacy of the staking platform. Although Tether has maintained a track record of honoring redemption requests from verified customers, investing in stablecoins still carries inherent uncertainties, as nothing in the cryptocurrency space is guaranteed.
Additionally, LoPresti emphasizes the importance of regulatory scrutiny in shaping the future of stablecoins. Transparency, collateral sufficiency, and liquidity will likely be focal points for regulators, especially in light of recent events such as the collapse of TerraUSD. As regulatory frameworks evolve, stablecoin issuers will face increasing scrutiny to ensure compliance and maintain market stability.
How to buy Tether?
Indeed, purchasing Tether (USDT) can be done through cryptocurrency exchanges like Bitpanda using fiat currencies such as euros or U.S. dollars. It’s advisable to familiarize oneself with the price history of USDT and the current exchange rate before making a purchase.
Once acquired, your Tether investment can be stored and managed in a digital wallet, which operates similarly to a banking app. From your digital wallet, you have the flexibility to hold onto your USDT or sell it back via the exchange whenever you choose. This provides investors with the convenience and flexibility to manage their Tether holdings according to their preferences and investment strategies.
