Tether has become the leading stablecoin by market cap, not just because of its name and gimmick but also due to its use cases. The demand for stablecoins has increased over the last year as they are considered to be safer alternatives to digital tokens such as Ethereum, Bitcoin, XRP, etc. These crypto tokens are extremely volatile, and the recent bearish market has led investors towards stablecoins.
Tether is a stablecoin that is pegged to 1 USD and backed by fiat reserves of that value at any given time. In this article, we will be taking an in-depth look at Tether (USDT) — its history, pros and cons, and future scope of adoption.
Why use a stablecoin?
Stablecoins represent a class of cryptocurrencies that aim to balance the volatility associated with digital assets by pegging their value to another asset. Stablecoins are a type of digital tokens that are designed to maintain a stable price. If the price of a stablecoin increases, the issuer will buy back the coins from the market.
Similarly, if the price of a stablecoin decreases, the issuer will sell more of the tokens in the market. Stablecoins are gaining popularity in the crypto market as they are useful to investors who want to trade in crypto assets without worrying about price volatility.
What is Tether?
Tether is one of the most dominant stablecoins and is pegged to the US dollar. The value of each tether token is directly proportional to the value of 1 USD. That is, if the dollar value of 1 USD increases, the value of 1 USDT also increases. Similarly, if the value of 1 USD decreases, the value of USDT decreases.
As mentioned, Tether is always 100% backed by the USD, so investors can be sure that they will get their money back even if the price of USDT is 0. For other stablecoins, the market cap is calculated based on the supply of coins. But for Tether’s market cap, the market cap is calculated by the supply of tokens and the USD reserves.
History of Tether
Tether was founded in October 2014 by Brock Pierce, who is also the current CEO of the company. They have their headquarters in the British Virgin Islands (BVI).
- In 2015, they started their first phase of operations with the promise to deliver a new type of virtual currency.
- In 2016, they launched their first token, Tether. At the same time, they announced the formation of the Tether Foundation, a non-profit organization whose purpose is to issue and redeem Tether tokens.
- In October 2017, Tether gained mainstream attention when it became listed on the Bittrex exchange.
- Later in December 2017, Bitfinex, the largest USDT trading platform, and Tether were subpoenaed by the US Commodity Futures Trading Commission (CFTC).
- In January 2018, Tether and Bitfinex were subpoenaed by the US Attorney’s Office for the Southern District of New York. In the same month, the New York Times published an article about Tether. In it, the New York Times questioned the legitimacy of Tether and the transparency of Bitfinex.
Pros of Tether
- Tether is backed by fiat reserves of 1 USD and is, therefore, a safe investment. This makes it an ideal stablecoin for traders who want to reduce the volatility of a portfolio.
- Investors who want to short-sell the market can use Tether, as it is inversely proportional to the Bitcoin market.
- Tether is the most widely accepted stablecoin and can be traded in almost all exchanges.
- It is also one of the most liquid digital assets and is available on all major exchanges. This ensures that no one holds value in the crypto market.
- It is easy to transact and convert. Investors can easily transfer and exchange USDT tokens against USD.
Cons of Tether
- Tether is regulated by a private company — The entire system of Tether is regulated by a single company, which raises lots of red flags among the regulators and the investors.
- Lack of transparency — The company has failed to present real-time audits for their funds.
- Lack of public oversight — There is no public oversight of the Tether reserves and the financial system that backs up the USDT value.
Future of Tether
The future of Tether depends on a lot of factors. If it manages to get the trust of investors back, it can be a profitable investment. But if the recent controversies continue, it is unlikely to be a successful stablecoin.
While the regulatory bodies are worried about the USDT value being backed by real dollars, the investors are concerned about the legitimacy of the company. However, the company is trying to make amends by making the operations transparent and publishing the details of their operations on their website.