What Is Tether (USDT)? - Stablecoins, Low Volatility

The last few weeks in the cryptocurrency market have been interesting. In the last days of April 2021, traders noticed a consistent reduction in the value of different cryptocurrencies except for Tether which is known as USDT. Many people believe that USDT is the US dollar: this is not accurate.

However, Tether is not just a regular coin, it has a unique nature which prevents high volatility. It is a stablecoin. 

What is a Stablecoin?

A stablecoin is a new class of cryptocurrency that pegs its value to external references. Stablecoins are usually backed up by fiat currency such as the American dollar, the British Pound, the Japanese Yen, or in some cases, precious metals like gold and silver.

When you compare stablecoins and other cryptocurrencies, think of all cryptocurrencies as soldiers and stablecoins as the soldiers who have a backup team. The advantage stablecoins have over other cryptocurrencies is that their prices are backed up by normal currencies and precious metals which serve as collateral, preventing loss and offering stability in value. This stability in value builds trust in people and increases the purchase of stablecoins. There are many types of stablecoins, but Tether is the most popular of them all.

What Do We Know About Tether (USDT)?

Tether is a cryptocurrency that is linked to the US Dollar. Tether tokens are issued by a company known as Tether Ltd. The tokens were first created in 2014 by Brock Pierce, Reeve Collins and Craig Sellars.

The initial name of Tether was RealCoin and it was traded in 2015 as equal to the US Dollar. There were originally four versions of Tether, each pegged to its own currency: dollar, euro, yuan and gold. Tether is less volatile than bitcoin and other cryptocurrencies, but eyebrows were raised in 2019 when it was reported that the parent company of Tether Ltd used 700 million dollars from Tether to cover an 850 million dollar loss.

Although the company denied this claim, some people are still wary of Tether and putting their money in it. In late April 2021, Tether remained stable amidst the dips. The token won some fans and to date, some traders will hold on to Tether as if it is gold.

Misconceptions About Tether

The most common misconception that people have about Tether is that it is the American dollar. Although it is linked to the American dollar and supposed to be equal to one US dollar, it is not the same thing as the American dollar.

In 2019, Tether Ltd revealed that Tether was not completely backed by the US Dollar. In actual fact, for each 1USDT, there was a pegging of 0.75USD. This revelation was shocking for many traders, but it confirmed that a large percentage of the token was backed by the US dollar. Another misconception is that the USDT always equals 1USD. Although Tether is a stablecoin, its market value may vary from time to time. It could go slightly below 1USD and slightly above 1USD, but the company tries to keep the value as stable as possible.

People think that Bitcoin is the king of cryptocurrency, but Tether is a very important stablecoin, capable of transforming the cryptocurrency market. A change in the price of USDT can potentially cause a fall in the prices of other cryptocurrencies. A loss of trust in Tether will reduce the monetary value and cause a panic reduction in price for Bitcoin and other cryptocurrencies.

Final Thoughts on Tether

Tether is the token more likely to remain stable, compared to your other coins. In spite of the stability that Tether provides, it is not the best token for those looking to get rich quick. Since its draw is that it remains stable, USDT is not likely to rise by more than a small percentage. On the plus side, it is also not likely to fall so badly that you lose all your money. 

Disclaimer: This article is for informational purposes only and in no way constitutes investment advice. Please be sure to do your own thorough research before making investments of any kind.