What is Tether (USDT)?
5 mins read
7 mths ago
Tether is a blockchain-based cryptocurrency whose tokens are backed by fiat currencies like the US dollar, euros or cash equivalents, which are held in reserve by Tether Limited. Tether (USDT) is a type of cryptocurrency known as stablecoins. Stablecoins are a type of altcoins that are backed by fiat currencies so that they can have the price stability of the currency they are pegged to.
How Tether (USDT) works
Cryptocurrencies like bitcoin are known for their high volatility which leads to fluctuations in prices. And despite the solutions they provide as a medium of exchange and investment opportunities, this high volatility is a cause of concern for many cryptocurrency users around the world. In addition, access to cryptocurrencies with local currencies may prove to be challenging in some instances. But, Tether presents a solution to these challenges.
Tether is a type of stablecoins specifically known as fiat-backed stablecoins. This is relevant because not all stablecoins are backed by fiat currencies. Some are backed by commodities like gold, other cryptocurrencies like ether, or not collateralised at all. In the case of USD tether, however, there are actual US dollars held in a bank to back every tether token issued by the company. That means for every US dollar in Tether reserve, there is an equivalent tether token mined. So, 1 tether token has the same value as 1 US dollar.
Essentially, a tether token has both the characteristics of fiat money and a cryptocurrency. So, if you have US$100, you can purchase exactly 100 USDT with it. But you can do more with it than you can with your fiat money because it exists on the blockchain which inherently provides benefits such as transparency, security and ease of transacting.
Advantages of Tether (USDT)
USDT offers amazing opportunities for many, especially those living in countries with weak economies. We will highlight some of those benefits below:
- USDT provides a hedge against weak currencies: In a country like Nigeria that frequently experiences inflation and devaluation of its currency, USDT offers a solid alternative. With USDT you can easily save your money and retain its original value despite devaluation.
- USDT provides a hedge against cryptocurrency volatility: As the adoption of cryptocurrencies is on the rise, there are still concerns for many when using cryptocurrencies as either medium of exchange across borders or as an investment vehicle, and it is majorly around the price volatility. Although this volatility serves an advantage for entering and exiting the market easily, it might not be as good for holding the value of money.
Since Tether, however, is a stablecoin, it serves as a good store of value for not just fiat currencies but other cryptocurrencies as well. Say, for instance, you buy $100 worth of bitcoin and after a while the value increases, but then the market turns bearish. To maintain the new value of your investment you can convert your bitcoin holding easily to USDT, this way, regardless of the dip bitcoin experiences, your earnings plus your original investment will be intact. In fact, this way, you can buy bitcoin back when the market starts to improve at a lower price.
- USDT is easier to access: You might be wondering why you couldn’t just save your money in US dollar instead. Well, one of the advantages of many cryptocurrencies is that they are decentralised. This means that no government controls its issuance. This makes it easy for you to purchase USDT from anywhere in the world without worrying about cross-border restrictions. And since tether is backed by actual fiat reserve, it does not have a supply limit. So as long as there is money in the reserve, you can always buy tether tokens easily.
- USDT provides ease of transacting: Because tether tokens are pegged to fiat currencies, it makes it easy to make payments with them without worrying about the disparity in value. Also, tether makes it possible to send money overseas at no extra transaction cost and faster than fiat payments, thanks to blockchain technology.
Challenges facing Tether
Today, Tether is the most popular stablecoin in circulation. Most cryptocurrency exchange platforms offer tether pairs to their users so that they can easily trade cryptocurrencies. However, tether has faced many challenges since its creation; the most notable one has to do with tether reserves.
Proof of reserve
When tether was created, the company claimed that every tether token is backed by an equivalent dollar in reserve. But as the use of tether grew, the issuance of tether tokens ran into billions which began to raise doubt as to if the company actually had the reserve to back all the tokens in circulation. In response to this, Tether Limited announced a scheduled audit to verify reserves backing, however, the audit never came.
In 2019, the company changed the backing of tether to not just money in reserve but also pans to affiliate companies as well as clarify that each tether token was backed by only $0.74. While these controversies have raised some doubt about the transparency and reliability of tether, the stablecoin has nonetheless remained the top favourite by traders and investors around the world. Tether Limited also began to publish a daily report of its reserve for the sake of transparency.
How to buy Tether
As a company whose mission is financial inclusion for all, Yellow Card makes it easy for anyone to buy, send, receive, sell and even store Tether (USDT) with the Yellow Card app.
In 3 simple steps, you can take your fiat money or your Bitcoin and convert it to USDT easily. Here’s how to save USDT on Yellow Card:
- Download the Yellow Card App or create an account online. This automatically creates a Bitcoin, Ethereum and USDT wallet for you.
- Deposit your fiat currency into your wallet via instant bank transfer, cash or your debit card.
- Buy your preferred amount of USDT with your deposited fiat currency. Your USDT wallet will be instantly funded.
You can store your USDT in your Yellow Card wallet for as long as you want or sell it whenever you want to convert it back to your local currency.
You may also send USDT to friends and family anywhere in the world by having them sign up on Yellow Card or to an external wallet at no fees from Yellow Card. With this, you can easily attain financial freedom by meeting your financial goals early.
Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.