What Is Tether? How Does It Work?

The stablecoin acts like a glue that brings together fintech business’, wallets, payment processes, financial services and ATM’s together onto the blockchain. Tether was the subject of an investigation regarding price manipulation in 2017 and 2018. An official report found no publicly auditable records show any new token issuance as of August 2018. In 2021, the US Attorney General reached a settlement with Tether and Bitfinex to pay $42.5 million; however, Tether Limited and Bitfinex did not admit the allegations despite paying the fine.

The so-called Terra/Luna crash ended up driving down the price of Bitcoin, and it’s estimated that caused $300 billion in losses across the entire market. Recent market turbulence, which saw the price of TerraUSD, another stablecoin pegged to the U.S. dollar, drop to less than $0.23, caused Tether to break its $1 peg. The decline was largely driven by investors’ fears that if one stablecoin can break its peg, others can, too.

Is Tether Good or Bad For Crypto?

Since the token’s inception, Tether Limited had publicly proclaimed that each USDT token was backed by one US dollar in its reserves. The company also refused to conduct an external audit of its reserves for several years, which led to even more skepticism in the cryptocurrency community. Cryptocurrencies such as Bitcoin and Ethereum are often designed with a particular purpose or use-case in mind. Tether, also commonly referred to as USDT, is no exception to this rule — it is a digital currency that is designed to trade at exactly 1 US dollar at all times. Many altcoins trade directly against Tether, which tends to make these markets more liquid and volatile.

• The stability of Tether comes from its currency reserves, as the company claims to hold dollars and other assets that are equal or greater than the total number of USDT in circulation.
• These are digital currencies that are tied to real-world assets — the U.S. dollar, for example — to maintain a stable value, unlike most cryptocurrencies which are known to be volatile.
• In fact, it’s the world’s third-biggest digital coin by market value.
• Most of the time, the fees they charge for transactions are relatively low, Mizrach found; Tether’s fees are usually less than a dollar, while out-of-network ATM fees are about $3.08.
• Tether’s market dominance as the most widely used stablecoin and 4th largest cryptocurrency is also its Achilles heal.
• This essentially provides them with a way to seek safety in a more stable asset during times of sharp volatility in the crypto market.

There are Tether tokens available on various blockchains, such as the original one with Omni on the Bitcoin platform as well as Liquid, in addition to Ethereum (ETH) and TRON (TRX), among others. Crypto traders use Tether to provide steady, reliable liquidity to get in and out of other cryptocurrency trades without facing unpredictable losses (or gains) from volatile price changes. USDT is pegged to the U.S. dollar, and in theory it should be unaffected by the market volatility that can so dramatically impact the valuation of other cryptocurrencies, such as Bitcoin. Tether (USDT) is a popular stablecoin that crypto enthusiasts have used for years to leverage their cryptocurrency trades. The TerraUSD meltdown shocked the cryptocurrency market, which was already experiencing other difficulties at the time.

The Tether Reserves

It is almost universally available on prominent (and even not so prominent) exchanges. Recent market turbulence, which saw the price of TerraUSD, another stablecoin pegged to the U.S. dollar, drop to https://www.tokenexus.com/how-to-earn-bitcoins-if-i-am-a-beginner/ less than $0.23, caused Tether to break its $1 value, crypto experts say. This is a meta-protocol built on top of the Bitcoin blockchain that allows projects to create and trade their own currencies.

Well, there’s a possibility that regulation of cryptocurrency changes — certainly the rumblings from the Treasury Secretary and the head of the SEC suggest that regulatory changes are coming. The settlement agreement, by the way, bars Tether from doing business with anyone what is tether in New York. Bitfinex and Tether did not admit wrongdoing but paid an $18 million fine; Tether must also provide quarterly reports on its reserves for the next two years. Tether declined to comment on why money moves between Bitfinex accounts and Tether accounts.

Why would I use tethering?

Tether has no transaction fee, however external wallets or exchanges may charge their own fee to transact using it. Officially there is a small fee to convert USD to USDT on the Tether platform, tether.to. The only other place where USD Tether can be exchanged for USD is Kraken.