2022-12-08
Blog Trade

USDT stablecoins


Tether (USDT)
 is a digital currency stablecoin pegged to the US dollar. Tether belongs to iFinex, A Hong Kong-registered company that owns the BitFinex cryptocurrency exchange. Tether was launched in July 2014 as RealCoin and renamed Tether in November 2014. This stablecoin started trading in February 2015. Originally based on the Bitcoin blockchain, Tether now supports the Omni and Liquid Bitcoin protocols and the Ethereum, TRON, EOS, Algorand, Solana, OMG Network, and Bitcoin Cash (SLP) blockchains.

As of May 2022, Tether was the third most popular cryptocurrency after Bitcoin (BTC) and Ethereum (ETH) and the largest stablecoin with a market cap of nearly $83 billion. As of April 2022, USDT Tether accounted for two-thirds of non-Bitcoin exchanges by value.

What is a stablecoin?

As we mentioned, Tether is a stablecoin. So before continuing with the Tether review, let’s talk about stablecoins. Stablecoins are digital currencies whose value is linked to another currency, commodity, or financial instrument. The goal of stablecoins will be to provide an alternative to deal with the high volatility of the most popular digital currencies, including Bitcoin (BTC).

Understanding Stablecoins

Although Bitcoin is the most popular digital currency, it suffers from high price or exchange rate volatility. For example, the price of Bitcoin moved from daily lows barely above $4,000 in March 2020 to nearly $65,000 in April 2021 before falling nearly 50% over the next two months. The price of digital currency experiences many fluctuations, and a digital currency may have several price fluctuations even in 10 minutes.
This volatility can seem extraordinary to traders, but it turns ordinary trading into a high-risk gamble for buyers and sellers. For a currency to function as a medium of exchange, it must remain relatively stable, giving the investors who accept its certainty that it will maintain its purchasing power in the short term. Unfortunately, a daily movement of even 1% in transactions is relatively rare among traditional fiat currencies. As the name suggests, stablecoins aim to solve this problem by keeping the value of digital currency stable in various ways.

Key points about USDT

Tether (USDT) is a stablecoin, a type of digital currency that follows a fixed valuation.

Tether is used by investors who want to avoid the usual volatility of digital currencies while holding funds in the cryptosystem.

Tether’s founders paid nearly $60 million in fines in 2021 to settle two regulatory investigations into misappropriation and misrepresentation of their holdings.

History of USDT

Tether (USDT) was founded in January 2014 by Brock Pierce, Craig Sellers, and Rio Collins. This digital currency is a stablecoin, and its purpose is to maintain a fixed exchange ratio of 1:1 with digital currency.

Tether was one of the first stablecoins created based on Omni, a protocol for Bitcoin that introduced the concept of stablecoins to the world in 2012. Tether pioneered what is now known as a fiat-backed stablecoin model. USDT is the most widely used stablecoin in the digital currency world today.

USDT Tether was created as an attempt to solve the problems in the digital currency market: High volatility and convertibility between fiat and digital currencies. Tether created a digital currency fully supported by US dollar deposits in banks to address these issues. In Ethereum, USDT tokens are represented as ERC20 tokens, while Tether uses the Omni layer to trade USDT tokens in Bitcoin. While the tokens operate on a decentralized network, Hong Kong-based Tether Ltd is solely responsible for creating and redeeming tokens and maintaining the 1:1 escrow support.

Exchanges have been significant users of USDT as an alternative to fiat currencies, reducing or eliminating the need to maintain offshore banking relationships. Popular exchanges that use this token include Bitfinex, Bittrex, Binance, Coinbase, Kraken, Huobi, Poloniex, Liquid.io, Gate.io, and OKEx. Since the establishment of the USDT in 2014, Tether has been the subject of ongoing controversy due to its failure to provide audited financial statements proving that it has sufficient reserves to back the USDT. Historically, Tether has failed to disclose its banking relationships, only recently announcing its banking partners in November 2018 to quell rumors of its debt settlement raised by related cryptocurrency exchange Bitfinex.

In March 2019, Tether updated its disclosure statement to claim that its tokens are no longer 100% backed by US dollar deposits. Instead, Tether is now supported by 100% of its reserves, including traditional currencies, cash equivalents, and other assets.

Review of USDT

Tether belongs to a generation of digital currencies called stablecoins, which are proliferating. The purpose of these stablecoins is to keep the price of their tokens stable, and they usually do this by tying it to the price of a traditional currency such as dollar. Tether also issues tokens pegged to the euro, the Chinese yuan, and gold, none of which exceed. A small part of the market value of USDT tokens is not tied to the US dollar. The peg to a traditional currency, often backed by collateral reserves, ensures that stablecoins are not subject to the same price fluctuations as more speculative digital currencies such as Bitcoin.

Tether updates a summary of its reserves on its website every day. As of May 12, 2022, assets near $81.3 billion were reported for USDT. On the same date, Tether reported that 83.74% of its reserves were in cash, cash equivalents, short-term deposits, and commercial paper, 4.61% in corporate bonds, and 5.27% in secured loans to non-affiliated entities, and 6.38 holds a percentage in other investments, including digital tokens. Stable value promotes using stablecoins as a medium of exchange like regular money. The rapid growth in popularity of stablecoins results from their use as collateral by decentralized finance (DeFi) lending and investment protocols.

In May 2022, the price of Tether briefly fell to $0.96 after a different stablecoin, TerraUSD (UST), from an issuer unrelated to Tether or BitFinex, crashed. Tether tokens quickly rebounded to over $0.99, and Tether announced that it would continue to meet redemption requests that reached 2 billion tokens on May 12 at a 1:1 ratio against the US dollar.

USDT Security

In November 2017, Tether reported a cyber theft of $31 million worth of USDT tokens after the hard fork.

At the time, the company was already dealing with critics who questioned the adequacy of its Tether reserves and, as subsequent reviews showed, had difficulty accessing banking services.

In January 2018, Tether fired an accounting firm it had hired to conduct an audit, citing fraud and spreading false information about the company.

In April 2019, New York Attorney General Letitia James obtained a court order that Tether and iFinex, after it was found that BitFinex had borrowed at least $700 million from Tether’s reserves to compensate the frozen funds of the company and BitFinex customers. That is, BitFinex’s parent company was barred from further violations of New York law.

In February 2021, Tether and Bitfinex paid a fine of $18.5 million and regained the trust of New York state authorities, and submitted information about their holdings to the New York Attorney General’s office. As a result, the case was settled.