Though cryptocurrencies have attracted many investors lately, they are among the most hazardous commodities because of their volatile nature. Therefore, this is a common argument cryptocurrency detractors argue against widespread adoption.
Stablecoins offer a viable answer to the volatility of cryptocurrencies. Stablecoins are intended to have a fixed value by tying every token to a specific underlying cryptocurrency, fiat currency, or goods like valuable metals.
Among several stablecoins, Tether a well-known stablecoin investor, has long utilized them in their trades. The following article explains what Tether is and how it contributes significantly to the current cryptocurrency scene.
What is Tether?
Tether belongs to a class of cryptocurrencies called stablecoins. It is a cryptocurrency built so that a single US dollar backs each token. The symbol used to denote Tether is USDT. Every USDT token is linked to the US currency, which is kept in the standby reserve of Tether Limited. The aim is to maintain a 1:1 ratio, i.e., 1 USDT = 1 USD.
Moreover, Tether offers a “secure” electronic asset with a constant value. It links the conventional banking system and cryptocurrency trading by providing a secure and convenient method of value exchange.
History of Tether
Tether (USDT) was introduced in 2014 by three programmers, Reeve Collins, Brock Pierce and Craig Sellars, using Omni protocol. It was initially introduced under the name Realcoin to offer a reliable cryptocurrency backed by reserves of fiat money. Later that year, Reeve Collins changed its name to Tether
Tether began trading on Bitfiex in 2015 and rose to new heights until 2017.It came under fire for allegedly failing to prove that an equivalent sum of fiat money backs each USDT token in circulation. Therefore, US banks stopped Tether from trading in 2017.
Moreover, legal issues have also been raised concerning Tether and Bitfinex, its linked exchange. The corporation has tried to ease worries by giving quarterly confirmation from consulting firms verifying its reserves. In recent years, Bitfinex and Tether reached an $18.5 million fine payment agreement resolving the issue.
The Working Mechanism of Tether
Tether working is similar to any blockchain platform even though it uses the USDT as its native token. Tether aims to provide a more consistent value than the other cryptocurrencies’ sharp price swings. For the network to function, each token must be pegged against commodities with a value equal to one US dollar.
When someone puts fiat-based money into Tether’s reserve, Tether creates tokens based on the same digital value. The USDT can later be transferred, saved, or traded. When users exchange Tether tokens for fiat money, the tokens are burned and taken out of circulation.
Pros and Cons of Tether
The stability of Tether (USDT) is one of its main benefits. Within the crypto industry, Tether offers a dependable exchange vehicle and a somewhat stable store of value. Because of its consistency, it is advantageous for companies and people who want to deal without being subject to price volatility.
Tether is advantageous for international transfers and payments since it enables quicker and less expensive transactions. Last but not least, Tether is a well-known stablecoin that is widely used as a form of exchange and therefore is a readily available cryptocurrency found on most cryptocurrency exchanges.
Tether has had numerous complaints and debates; the absence of total transparency and impartial audits to confirm the alleged reserves of fiat currency allegedly backing each USDT is a major cause for concern. This raised questions about the sufficiency of reserves and the veracity of Tether Limited’s assertions.
Additionally, Tether’s activities have been the subject of legal and regulatory inquiries, raising questions about its adherence to laws and potential hazards. Furthermore, Tether goes against the decentralized nature of cryptocurrencies because it relies on centralized authority. These elements emphasize potential limitations and demand investors give them significant thought.