Tether (USDT) is the most popular stablecoin of the cryptocurrency market, which digital currency enthusiasts have used for years to buy and sell their digital currencies.
In terms of its value, Tether is actually pegged to the US dollar and theoretically should not be affected by market fluctuations, which can greatly affect the valuation of other digital currencies such as Bitcoin.
What does tether stability mean?
Tether’s goal is to provide a secure digital asset that maintains a stable valuation. This is what makes USDT a stablecoin whose value is linked to the price of the US dollar.
Steve Bambra, CEO of Many Worlds Token, says: The main idea behind the formation of the USDT stablecoin is that 1 Tether can always be traded for $1 regardless of market conditions. Buy Tether Maintained its capital value.
Tether’s stablecoin competitors include USD Coin (USDC), Dai (DAI), and Pax Dollar (USDP).
Cryptocurrency market traders use Tether to provide stable and reliable liquidity to enter and exit other cryptocurrency transactions without facing unpredictable losses (or profits) from volatile price changes.
Tether had a 24-hour trading volume of $89 billion at the time of writing this article. This makes Tether the most critical Digital currency available in the market, even more than Bitcoin (BTC) and Ethereum (ETH), which are widely traded in the digital currency market. It is also among the three largest digital currencies in terms of market capitalization.
How does Tether work?
When a user deposits fiat currency (the currency of any country) into the Tether reserve and sells the fiat to buy USDT, Tether issues the corresponding digital amount in the form of tokens. USDT can then be sent, stored or exchanged. If a user deposits $100 into the Tether reserve, he will receive 100 Tether tokens at a 1:1 ratio. When users redeem tokens for fiat currency, Tether coins are destroyed and taken out of circulation.
Tether, like many other digital currencies, uses blockchain technology to record its events. Tether tokens exist in various blockchains, such as Omni, Tron, ETH and other widely used market networks, and it tries to cover all widely used blockchains.
A brief history of Tether
The origins of Tether go back a decade, when JR Wilt was looking to create new digital currencies based on the Bitcoin protocol. Mr. Willett originally implemented the idea with Mastercoin, a core member of which later co-founded Tether in 2014. The use of Tether for liquidity began when it was added to the BitFinex exchange in January 2015.
Cryptocurrency experts say that the recent market turmoil that saw the price of TerraUSD, another stablecoin pegged to the US dollar, drop below $0.23 has also caused Tether to lose its $1 value. This decline in value was mainly due to investors’ fear that if one stablecoin can break its peg, others can too.
“As an asset-backed stablecoin, held primarily in US Treasuries, Tether has a much better chance of weathering the current tsunami rocking the digital asset world,” said Mark Lopresti, CEO of The Strategic Funds. He says it is the only stablecoin with the same collateral quality as USD Coin.
The founder and general partner of Delta Blockchain Fund says about the difference between Tether and Terra Network’s stablecoin: “It will be difficult for Tether to fully follow Terra’s path, because if they decide to take even 30-50% of their collateral, not only It will destabilize the digital currency market, but also the broader financial markets.”
How is the value of Tether supported?
Despite stablecoins being a popular choice among cryptocurrency traders, Tether has other debates regarding liquidity issues and whether its reserves are sufficient to cover the number of USDT tokens in circulation.
According to the Tether website in 2019, the site claimed that Stablecoin is backed by traditional currency reserves and cash equivalents (and sometimes other assets from affiliated entities). This is a little more detailed than what is mentioned today. Today, Tether’s site states that “all Tether tokens are matched 1-to-1 with a fiat currency and are 100% backed by Tether reserves.”
Adam Carlton, CEO of the Pink Panda digital wallet, says that Tether’s history of transparency about how the token is backed has not always been clear or consistent. “Tether has a very dubious legal past, and to date, its actual holdings are still quite obscure, believed to consist primarily of unknown sources of commercial paper,” says Carlton.
Other cryptocurrency experts say it is somewhat accepted that Tether is not “fully” collateralized in the cryptocurrency market. And that this issue was controversial more than a year ago. However, according to the clarifications that were made after various debates about Tether, the tension in the market decreased a little.
Comparison of Tether and Bitcoin
The key difference between Tether and Bitcoin is that “Tether is a stablecoin that is tied in value to a real commodity, the U.S. dollar, while Bitcoin is a stablecoin,” says Daniel Rodriguez, CEO of Hill Wealth Strategies. No goods are tied in the real world.”
Tether is actually a centralized cryptocurrency, while Bitcoin is decentralized because it is not linked to real currencies. For this reason, in theory, Tether’s value should remain more stable than Bitcoin’s. Cryptocurrencies that are not tied to a real asset or currency are subject to market fluctuations. Most traditional cryptocurrencies such as Ethereum, Bitcoin and Litecoin (LTC) will experience extreme volatility in the market, inflation and interest rates. “Tether seems to be a bit more stable as it stays close to the value of a dollar, a few cents more or less, nothing to worry about,” Rodriguez continues in Abarre.
Another distinction is that Tether is not necessarily designed to make money, but rather a stable store of value. This is why most digital currency traders convert their money into Tether and not other cryptocurrencies in falling markets, because maintaining the value of their assets is more important than making a profit.
final word
Buying Tether does not make sense as an investment because they are not going to increase in value. They only serve as a store of value, as one USDT must always be equal to one dollar. But considering Iran’s inflationary conditions, it can be an easier way than buying paper dollars and standing in long queues. Of course, it should be noted that Tether is easier to store than paper dollars, and it is much easier to transport. Even for sending money abroad or vice versa, it can be a more optimal method than the traditional method.
Now that this article is being written, the import and export of goods through digital currencies has also started. It is a thought to choose whether we should still use traditional methods, or take a big step towards the future. The choice is yours.
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