What is Tether (USDT)?
USDT is the symbol for Tether, a cryptocurrency pegged to the US Dollar, meaning that USDT is a stablecoin whose value fluctuates according to the US Dollar and is backed by Tether's US Dollar reserves. USDT is issued by Tether, a company registered in Hong Kong and owned by iFinex, which also owns the cryptocurrency exchange BitFinex.
As of March 2024, USDT is the third largest cryptocurrency after Bitcoin (BTC) and Ethereum (ETH) and the largest stablecoin with a market capitalization of approximately $99 billion. In 2023 and early 2024, Tether’s USDT accounted for the majority of trading volume of other cryptocurrencies.
Key Takeaways
- USDT is a stablecoin, a type of cryptocurrency that is pegged to fiat currency, i.e. the US Dollar.
- USDT investors seek to invest in cryptocurrencies while avoiding the extreme volatility of uncollateralized cryptocurrencies.
- Tether can be purchased through cryptocurrency exchanges and apps such as Kraken and Coinbase.
Understanding Tether (USDT)
USDT, or Tether, is a type of fast-growing cryptocurrency known as stablecoin, which avoids the extreme volatility of unpegged cryptocurrencies by tying their value to the price of traditional currencies, most commonly the US Dollar.
Tether launched as RealCoin in July 2014 and was rebranded as Tether (USDT) in November 2014. It was originally based on the Bitcoin blockchain but now supports Bitcoin's Omni and Liquid protocols as well as the Ethereum, Avalanche, Kava, Polka, TRON, EOS, Algorand and Solana blockchains.
Tether has also issued tokens pegged to the euro, offshore Chinese yuan, Mexican peso and gold, but each of these represents a small fraction of the market capitalization of its U.S. dollar-pegged USDT token.
How to fix the currency
Pegged currencies are often backed by reserves that are made up entirely or largely of the pegged currency. Many fiat currencies, including the currencies of Panama and Saudi Arabia, are pegged to the US Dollar. This protects them from extreme value fluctuations as the trading value of the currency fluctuates along with the US Dollar.
The same price stability is the foundation of pegged cryptocurrencies.
Tether Transparency
Tether updates the breakdown of its reserve holdings daily on its website. As of March 3, 2024, it reported $99.45 billion in USDT assets. The company reports that it holds 84.58% of its reserves in cash, cash equivalents, short-term deposits, and commercial paper, of which 76.87% was U.S. Treasury securities.
Additionally, 0.05% of the reserve was held in corporate bonds, 3.62% in precious metals, 2.91% in Bitcoin, 4.95% in secured loans to unaffiliated entities, and 3.89% in other investments.
Tether advertises that it backs every USDT with an equivalent fiat currency, but as the figures above show, this isn't entirely true, although it does generally honor its 1:1 commitment.
Stability
Their stable value allows stablecoins to be used as a means of exchange, just like traditional money.
In practical terms, stablecoins have made it easier to speculate in the cryptocurrency markets, and their rapid growth in popularity has been driven in part by their use as collateral in decentralized finance (deFi) lending and staking protocols.
History of Tether
In November 2017, Tether reported that $31 million worth of USDT tokens had been electronically stolen. The company implemented a hard fork, a security technique that splits the blockchain into two streams.
At the time, the company was already facing questions about the adequacy of its reserves and, as a subsequent investigation revealed, was also having problems accessing banking services.
2019
In April 2019, New York Attorney General Letitia James obtained a court order enjoining Tether and Bitfinex's parent company, iFinex, from further violations of New York law after Bitfinex was found to have borrowed at least $700 million from Tether's reserves to offset Bitfinex corporate and customer funds that were frozen (and ultimately seized) from its Panamanian banking partner, Crypto Capital Inc., during a money laundering investigation.
Tether is a accredited member of the Blockchain Alliance, a coalition that works to advance blockchain development and its legitimate use.
2021
In February 2021, Tether and Bitfinex reached a settlement under which they agreed to pay a $18.5 million fine, cease doing business with New York residents and entities, and provide information about their reserves to the New York Attorney General's Office for the next two years.
In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) announced that Tether agreed to pay a $41 million penalty for “allegations that the Tether stablecoin was fully backed by the U.S. dollar.” In fact, according to the CFTC, “Tether held fiat reserves in its accounts sufficient to back the USDT Tether tokens in circulation only 27.6% of the days during a 26-month sample period from 2016 to 2018.” Bitfinex agreed to pay a $1.5 million penalty to resolve another CFTC allegation as part of the settlement.
2022
In May 2022, the price of Tether briefly dropped to $0.96 after it lost its peg to TerraUSD (UST), despite the issuer not being affiliated with Tether or BitFinex. The price of the Tether token quickly recovered to above $0.99, and Tether stated that it was still accepting redemption requests at a 1:1 ratio against the US dollar.
Following its earlier expansion into Europe (EURT) and China (CNHT), Tether has also launched a Mexican peso-backed stablecoin, MXNT.
2023
In 2023, Tether acquired Northern Data Group, expanding into the artificial intelligence field. The company has appointed Paolo Ardoino, a former chief technology officer and avid advocate of cryptocurrencies and blockchain financial solutions, as its new CEO.
That same year, the long-running lawsuit against Tether and Bitfinex finally came to an end when Judge Laura Swain dismissed the claims in November 2023.
The company also continued to participate in various efforts to strengthen cryptocurrency security, educate users and lawmakers, and cooperate with law enforcement.
How is USDT different from other cryptocurrencies?
USDT is a pegged cryptocurrency whose value only fluctuates in line with the US Dollar. Other examples include USD Coin (USDC), Binance USD (BUSD), and Dai (DAI).
One advantage of tethering is that investors can easily move funds between the cryptocurrency market and the traditional financial system without having to wait for a sudden drop in trading value.
How do I buy USDT?
Tether tokens can be bought and sold on cryptocurrency exchanges such as Binance, CoinSpot, Bitfinex, Kraken, etc. Some online brokerages also offer the cryptocurrency.
Is Tether the largest stablecoin?
Yes. Tether is the first and best known stablecoin in the cryptocurrency world. The company’s market capitalization was approximately $99 billion as of March 2024.
Conclusion
Tether is a cryptocurrency that attempts to maintain a peg of its value to an underlying currency such as the dollar or euro. It achieves this by holding enough real currency or its equivalent in reserves so that the cryptocurrency has the same value as fiat currency.
Tether is primarily used to convert cryptocurrencies into fiat currencies to prevent slippage, i.e. the loss in value between the initiation and execution of a trade. However, it may not be precisely pegged to the fiat currency it is supposed to track. For example, when exchange FTX collapsed in November 2022, Tether plummeted to nearly $0.995, but quickly recovered and has sometimes seen a peg of more than 1:1.
Comments, opinions and analyses expressed on Investopedia are for informational purposes only. For more information, please read our warranties and disclaimers. At the time of writing, the author does not own any cryptocurrency.
