Fiats, Stablecoins, Tether, and How it Works. Perhaps the biggest problem with cryptocurrency is its volatility—how much it fluctuates makes it so hard to be considered a unit of account.
Because most cryptocurrencies are pretty unstable, some programmers and digital money enthusiasts thought of stablecoins as the best bet for keeping money out of the grip of central authorities while keeping it digital.
Stablecoins are electronic representations of money pegged to a fiat currency, cryptocurrency, or commodity money (such as gold) so that their value stays stable and predictable.
Tether is a stablecoin. Other examples of stablecoins are Binance USD (BUSD), Dai (DAI), USD Coin (USDC), TrueUSD (TUSD), etc. As it stands, stablecoins are cryptocurrency’s best shot at mimicking fiat currencies in value and stability.
Tether, represented with the symbol USDT, is a steady-value token primarily hosted on the Bitcoin and Ethereum blockchain. Tether, like other stablecoins, is a go-to if you are an investor or trader seeking to use cryptocurrency as you would use fiats.
Tether was created by iFinex, a company registered in Hong Kong (the owners of the BitFinex exchange platform).
Tether was launched in 2014 to create unfluctuating digital cash with a valuation that mirrors that of the United States of America’s dollar. So far, Tether has progressed fairly well and is proudly the most popular stablecoin. As of June 2022, Tether is worth over $66 billion and is the 3rd most valuable cryptocurrency by market cap.
How Tether Works
Some investors and programmers want to own money in blockchain technology because they know the future is digital. Despite that, not all are willing to dive into the volatility gamble, some for fear and others for the sake of their investment strategy and predictions.
Tether, like other stablecoins, steps in the rescue. If the fluctuation of virtual currencies like Bitcoin, Ethereum, and Dogecoin is too much risk for you to put up with, a token backed by a traditional currency like the Dollar comes in to serve.
When you give up your fiat money in exchange for USDT tokens through a cryptocurrency exchange platform, you receive the equivalent number of tokens for the amount of money used for the purchase. If a token costs a dollar, you receive 500 tokens for buying with $500.
Afterward, you can send them to someone else, exchange them for other currencies, or store them in a wallet.
Since stablecoins pursue an identical value with traditional currencies (the dollar in Tether’s case), 1 USDT should equal $1. However, it may not exactly be the case all the time because they can fall slightly underneath or above the fiat they’re tied to. But the goal is to consistently reflect the exact value of the fiat they’re pegged to.
In 2019, Tether claimed through its website that its coin was duly backed by reserves in traditional money, cash equivalents, and other assets from partnering entities as well. However, today, Tether’s website has different information for the public.
Here it is: “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves.”
Like all other cryptocurrencies and tokens, Tether has had its share of criticisms, alleged lack of sufficient transparency, and suspicious claims now and then. But whether such lashings are true isn’t up to us to decide.
Many investors rally behind Tether and other stablecoins today, not exactly because of their valuation or reliability but because they come closest to real-life currency and commodities in the stability of value.
Take-home Points on Tether:
- Tether is a digital token backed by a fiat currency (the U.S. Dollar).
- Tether is a stablecoin.
- Stablecoins are electronic representations of money pegged to a fiat currency, cryptocurrency, or commodity money (such as gold) so that their value stays stable and predictable.
- Tether, as a stablecoin, is far less volatile than other cryptocurrencies (that are not stablecoins).
- Tether functions on the Ethereum and Bitcoin blockchains.
- All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves.
- As of June 2022, Tether is worth over $66 billion and is the 3rd most valuable cryptocurrency by market cap.
Disclaimer: The above blog post expresses the thoughts of the contributor who authored it. It is no publicity or advert for any token or cryptocurrency whatsoever—the contributor vouches for none. What you do with the information, and how much of it you embrace, reject, or act on is your sole decision and is at your own risk.