Tether Limited is a company that operates one of the first and most popular blockchain-based stablecoins that aim to mirror both the price of traditional monetary assets and various commodities.
Tether Limited is a company that operates one of the first and most popular blockchain-based stablecoins that aim to mirror both the price of traditional monetary assets and various commodities.
Tether differentiates itself from other stablecoins by being cash-collateralized, meaning that each token is backed 1:1 by an underlying asset like a central bank-issued currency (e.g.: US Dollar or Euro) or other commodities (e.g.: gold).
To that end, Tether Limited manages multiple stablecoin tokens: USDT (pegged to the US dollar), EURT (pegged to the Euro), CNHT (pegged to the Chinese Yuan), XAUT (pegged to an ounce gold) and MXNT (pegged to the Mexican Peso).
Tether first launched USDT in 2014 and was the first company to launch a major stablecoin intended to mirror the US Dollar. USDT offers the transparency and efficiency of blockchain-based cryptocurrencies and its price is less likely to fluctuate due to its nature as a stablecoin.
Stablecoins also offer many other advantages of cryptocurrencies such as being borderless, easy to transfer at a low cost, and a being part of a market that is open 24/7/365, providing a modern approach to money and a potential alternative to the traditional financial system.
Importantly, every token is backed by assets held in reserves so that anyone wishing to redeem their cryptocurrency for the underlying asset can do so. The company releases quarterly reports detailing the reserves and posts them on their website where anyone interested can see it. In addition to cash, the company also holds corporate bonds, loans, and various cash equivalents (like U.S. Treasury bills).
TETHER ESSENTIALS
- USDT is a stablecoin that is pegged 1:1 to the US Dollar and backed by cash and cash-equivalent reserves held by Tether Limited.
- USDT, like many other stablecoins, is used by traders who wish to avoid the volatility associated with other cryptocurrencies while reducing costs and delays that often occur when converting crypto to cash.
Who created Tether?
The stablecoin was created in 2014 by the Tether Limited startup co-founded by early Bitcoin supporters Brock Pierce, Reeve Collins, and Craig Sellars along with iFinex, the same parent company as crypto exchange Bitfinex.
The stablecoin was first released under the name realcoin in 2014, and the first tokens were distributed on the Bitcoin network via the Omni Layer protocol, a platform used for creating and trading digital assets on top of Bitcoin.
The company faced controversy for a period of time due to its failure to provide audited financial statements proving that it had adequate reserves backing its tokens. However, the company releases quarterly reports detailing their reserves since March 2021.
How does Tether work?
Tether Limited accepts deposits and withdrawals from users and mints (creates) and burns (destroys) tokens based on that demand.
If a user wants USDT, they may send cash to Tether Limited, who custodies the asset and proceeds to mint USDT before sending the cryptocurrency back to the user. Anyone can send USDT back to the firm and redeem it for cash at any point, prompting the company to burn the USDT they receive, helping keep their balances in check.
Tether follows an IOU model whereby the central entity (Tether Limited) backs the value of the stablecoin such that investors can redeem their stablecoins whenever they wish. The system thus relies on a Proof of Reserves (PoR) system, where a third-party conducts an independent audit to ensure that the company indeed holds the assets it claims to.
After going live on the Bitcoin network, the stablecoin is now available on a number of layer 1 blockchains, including Ethereum, Tron, Tezos, Algorand, and Solana.
Why use Tether?
Tether was created to accommodate the growing need for a stable currency mirroring traditional fiat that could be transacted 24/7 in the blockchain ecosystem.
For example, USDT is often used by cryptocurrency exchanges like Bitstamp to add more trading pairs to their platform. This allows traders to quickly get in and out of trades to protect themselves from the sometimes-high volatility of crypto assets. Further, traders can use USDT to easily move their funds in and out of exchanges faster and with lower costs than when using traditional currencies.
USDT, and stablecoins in general, can also be used as an alternative to traditional currencies for any type of transactions (even as simple as buying a coffee) by leveraging blockchain technology to perform cheap, quick, and easy transactions while providing instant settlement 24/7.
This webpage has been approved as a financial promotion by Bitstamp UK Limited which is registered with the UK’s Financial Conduct Authority. Please read the Risk Warning Statement before investing. Cryptoassets and cryptoasset services are not regulated by the Financial Conduct Authority. You are unlikely to be protected if something goes wrong. Your investment may go down as well as up. You may be liable to pay Capital Gains Tax on any profits you earn.