Tether, sometimes known as USDT, is the most widely used stablecoin. Tether is a tokenized form of the US dollar tied to the US dollar at a 1:1 ratio. Thus, the value of this currency is kept ‘stable’ by its link with the US dollar.
Tether was created with the goal of providing consumers with stability, transparency, and low transaction fees by bridging the gap between fiat currencies and cryptocurrencies. As a result, it is tied to the US dollar and maintains a value-to-value ratio of one-to-one with the US dollar.
Tether Ltd., a private Hong Kong-based corporation that issues the Tether currencies and the name of the stablecoin, does not guarantee any right of redemption or exchange of Tethers for actual money — in other words, Tethers cannot be traded for US dollars.
Tether is often the most-traded altcoin and is regarded as the third or fourth-largest cryptocurrency with a market worth of over $30 billion.
What is a Stablecoin?
A stablecoin differs from other cryptocurrencies in that its price does not change due to market forces; instead, its value is tethered to a suitable currency. For example, Tether is a cryptocurrency linked (tethered) to the US dollar (hence the symbol USD.T).
Stablecoins are created in response to demand from customers who plan to use them in cryptocurrency exchanges. They are not mined like cryptocurrencies and are not decentralized.
Tether is a fiat-collateralized stablecoin, which means it is backed by fiat currency. This means that each crypto coin in circulation is backed by a fiat currency such as the US dollar, euro, or yen.
Crypto-collateralized stablecoins, which use cryptocurrency reserves as collateral, and non-collateralized stablecoins are two other types of stablecoins. The non-collateralized stablecoins don’t have any assets to back them up, but they work in a similar fashion to a reserve bank to ensure that the appropriate quantity of tokens is maintained, depending on the economic circumstances.
What is Tether used for?
Tether’s primary goal is to make cryptocurrency trading more convenient and affordable. Tether accounts for more than 75% of Bitcoin trade this year. Tether is used chiefly for liquidity and to hedge against volatility when trading other cryptocurrencies such as Bitcoin. Although some individuals invest in it, it is primarily used for liquidity and to hedge against volatility when trading other cryptocurrencies such as Bitcoin.
There are several reasons to use a stablecoin like Tether, the majority of which are related to the drawbacks of exchanging cryptocurrencies with another volatile crypto asset or a traditional currency such as the dollar, euro, or Swiss franc.
- Fiat currencies necessitate a lengthy and relatively high-fee banking process.
- However, it is difficult to invest in a single cryptocurrency if the crypto asset you purchased is likewise volatile. Thus, trading one cryptocurrency against another is more akin to forex trading than it is to investing.
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