How Does Tether Work – Get All the Crucial Information

Have you ever thought about a popular cryptocurrency tether and how does it work? Why are tether coins in high demand nowadays? According to financial institutions, the cryptocurrency exchange has become one of the most popular financial activities online. Most cryptocurrencies we know of thrive on speculation and generate profits for traders due to their high volatility. 

Tether (USDT) is another story – its goal is to stabilize cryptocurrency valuations. This stablecoin was specifically designed to build the bridge between fiat currencies and cryptocurrencies. If you’re into blockchain technology and want to buy cryptocurrency such as Tether, it’s crucial to know more about the crypto exchange in general and then more about tether reserves, USDT price, and much more.

But before that, in this short guide, we’ll explain how this cryptocurrency manages to “stabilize” the price of its tokens. Let’s begin!

What Is Stablecoin?

A stablecoin is a digital currency that is pegged to a reliable reserve asset. With Tether, which is among the most popular stablecoins, this asset is the US dollar. If you look at the USDT сhart, you’ll see that ever since the launch, the price of one token has been $1. There have been minor price fluctuations over the years, but the asset hasn’t dropped lower than $0.92 (23 Apr 2017) or increased higher than $1.08 (12 Dec 2017).

This means users buy Tether (USDT) for reasons other than speculative. If you want to invest in cryptocurrency such as Tether, this is essential information for you!

Stablecoins combine the best features of both worlds – traditional asset stability and digital-asset flexibility. They are free from the volatility of regular cryptocurrencies (non-pegged), yet they keep some of the most powerful properties of crypto:

• Transparent, global, and accessible all over the world at any time;
• Fast, cheap, and secure to transmit;
• Programmable and malleable to new cryptographic algorithms and protocols.

The Technology Behind Tether

Tether is built on Omni Layer, a platform for creating and trading custom digital assets and currencies, formerly known as Mastercoin. It is just one of the many digital currency protocols that were created on top of the Bitcoin blockchain.

By using the Omni Layer protocol, Tether leverages Bitcoin’s ability to anchor data permanently on its blockchain with some advanced Omni-specific features. There are multiple networks powered by this technology. However, USDT is by far the largest – over 75% of transactions facilitated by the protocol are made by USDT users.

What Is the Purpose of Tether?

Firstly, we should point out that some people still use Tether as an investment asset, mainly for liquidity and to hedge against other currencies. But USDT excels in another area – making crypto transactions easier and cheaper. Currently, more than 75% of Bitcoin trading is carried out through USDT, even though USD seems like an obvious choice.

The bulk of Tether users are:

• Traders who don’t want to move their crypto assets to fiat
• International investors who don’t have bank accounts in USD

Another practical use of USDT is P2P lending. This is an arrangement where users deposit their tokens into a compound smart contract and earn passive income from other users trading their USDT reserve. However, this use case requires a lot of faith in the project’s long-term stability.

USDT Price and Other Statistics

At the moment, the USDT price is $1.0003964 per (USDT/USD). The current market cap is $82.10B USD. Regarding the 24/h trading volume, it is 22.87B USD. In the last 24 hours of writing, Tether is -0.01%. The circulating supply of USDT is 82,062,573,140 USDT.

A Brief History of Tether

Genesis of Tether

In 2012, J.R. Willett proposed creating new cryptocurrencies on the Bitcoin blockchain, laying the groundwork for Tether, a stablecoin.

Mastercoin Foundation and Tether’s Birth

Mastercoin Foundation, later the Omni Foundation, fostered Tether’s growth on the Mastercoin protocol. Co-founder Brock Pierce, with Tether founder Craig Sellars as CTO, played pivotal roles.

From “Realcoin” to Tether

Launched as “Realcoin” in July 2014, the project evolved, culminating in the October 2014 debut on the Bitcoin blockchain via the Omni Layer Protocol.

Stability in the Volatile Market

Tether differentiates itself by backing each Tether token with real currency, reducing exchange risk—a hallmark feature in the crypto market’s volatility.

Operational Presence – Global Headquarters

Tether is headquartered in Hong Kong, with Swiss offices.

Tether in the Crypto Ecosystem: Deposits and Withdrawals

Tether (USDT) facilitates seamless deposits and withdrawals on crypto exchanges like Bitfinex. It serves as a reliable bridge between cryptocurrencies and traditional currencies.

Period from 2015 to 2016

Bitfinex started allowing trading of this cryptocurrency on their exchange in January 2015. However, leaked documents revealed that Bitfinex officials helped set up Tether Holdings Limited in the British Virgin Islands in 2014. 

Although they insist on being separate, Tether and Bitfinex share the same CEO, Jan Ludovicus van der Velde. Tether issues tokens on several blockchains and currently has five unique tokens: US dollar and euro tethers on the Bitcoin Omni layer, US dollar, and euro tethers as ERC-20 tokens, and a US dollar tether on the TRON network as a TRC-20 token added in 2020.

2016 to Present

Tether’s outstanding value surged from roughly $10 million to around $2.8 billion between Jan 2017 and Sep 2018. During the summer of 2018, Tether represented as much as 80% of Bitcoin’s trading volume, compared to 10% at the start of the year.

Research suggests that Tether’s price manipulation scheme was responsible for about 50% of Bitcoin’s price spike in late 2017. In August 2018, Tether issued over $500 million. On 15 Oct 2018, traders on Bitfinex caused Tether’s price to drop to $0.88 due to credit risk, exchanging Tether for Bitcoin.

In late 2018, a Wall Street Journal report accused Tether co-owner Stephen Moore of approving fake invoices and contracts to avoid using banks for Tether transactions. Tether refuted the claims as “wholly inaccurate and misleading” without pointing out specific inaccuracies.

In 2019, Tether became the most traded cryptocurrency, surpassing Bitcoin in daily and monthly trading volume.

Is Tether Reliable?

The project has hit a few hurdles along the way. Namely, an alleged hack in 2017, where $31 million worth of USDT coins were stolen, a subpoena issued after refusal to carry out a necessary audit of its real-world reserve, and an accusation of a loss of $850 million dollars of commingled client and corporate funds from investors.

It’s clear that Tether should be used to store funds. But the store of value has never been the goal for its creators. As with anything in the crypto world, you should be aware of the risks. But USDT’s daily transaction volume shows that it’s a useful tool for dealing with other cryptocurrencies, so make sure to use Tether for the right reasons.

Bottom line

In summary, Tether (USDT) stands as a stablecoin pegged to the US dollar, designed to bring stability to the cryptocurrency market. It serves as a bridge between fiat currencies and cryptocurrencies, facilitating seamless transactions.

Tether’s success and widespread use in the crypto ecosystem underscore its role in simplifying crypto trading and investments. However, it has faced controversies and challenges, highlighting the importance of using it for its intended purpose and understanding associated risks.