What Is Tether, And How Does It Work?

“What is Tether?” you may ask. Tether (USDT) is one of the most popular stablecoins. It was developed as an asset-backed by the U.S. dollar at a ratio of 1 to 1. The coin is available on many blockchain networks and has experienced increased trading volume and liquidity over the past few years.

Like other stablecoins, USDT is valuable in cryptocurrency trading because it allows traders to protect themselves from the market volatility inherent in BTC and other crypto assets. In addition, using this stablecoin helps avoid additional costs and delays in conversion between cryptocurrency and fiat.

In this article, we give you a general overview of this stable coin explaining how it works while presenting its advantages and disadvantages. Additionally, you will know where you will be able to buy this digital asset and how to do so. But first thing first.

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What is Tether?

Tether or USDT is a blockchain-based cryptocurrency founded in 2014. It is a kind of crypto-fiat hybrid, and the essence is that its value is pegged to the price of fiat currency.

Initially, the coin was called Realcoin. However, during the subsequent rebranding, it changed not only the name but also the underlying technology. It is the most popular stablecoin on the cryptocurrency market, which is claimed to be backed by U.S. dollars at a 1:1 ratio. This cryptocurrency is available on various blockchains and has shown growth in trading volumes and increased liquidity over the past few years.

Technically, Tether is a project that uses fiat money as a digital currency. It was developed based on the bitcoin blockchain, so the system combines the features of real funds and the digital system. Using this technology gives the investor and trader absolute transparency of all transactions. So, that is the answer to the question - what is USDT crypto?

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How does Tether work?

Tether is based on a 3-layer stack architecture consisting of blockchain technology, the Omni layer protocol, and Tether Limited. Each layer has its purpose and unique working algorithms.

The button layer is blockchain technology. It works as a transactional ledger and runs the algorithm of consensus.

The second layer is the Omni layer protocol, which is used to create or destroy digital coins of Tether. Additionally, it tracks and reports the coins in circulation. With the help of this layer, users can transfer their money safely and, what is essential, anonymously.

And finally, Tether Limited is the third layer. With its help, it is getting easy to manage all fiat deposits and withdrawals from the reserve of Tether. Moreover, it allows for managing compliance logistics and Tether’s web wallets.

When a user tries to deposit fiat money and convert it to Tether coins, Tether Limited generates the corresponding amount of digital money that can consequently be sent, stored, or exchanged. In case when the user redeems the tokens for fiat money, the digital currency is destroyed from circulation.

The price for Tether, which we are talking about USDT, is pegged to the U.S. Dollar and has a one-to-one ratio. And if you want to buy 200 USDT, you need to put in 200 USD (in most cases).

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How does Tether stay at $1?

The most critical information to know (besides answering the fundamental question - what is USDT crypto?) is how Tether stays at $1. As mentioned above, Tether (USDT) is equal to the U.S. Dollar, and the company states that it can maintain the stable value of the digital token because of the reserved funds. On the official website of Tether, you will find daily updates about the company’s reserves.

It is worth also mentioning that Tether has a few more different coins that are pegged with other fiat currencies. Among them are:

EURT (for euro);
CNHT (for Chinese yuan);
XAUT (for gold);
MXNT (for Mexican peso).

The same situation is with these currencies as well.

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The use of different blockchains

Since USDT is implemented on different blockchains, you must make sure you transfer funds within the same network.

For example, if you go to the Binance USDT withdrawal page, you will be offered five networks to transfer: Binance Chain (BEP2), Binance Smart Chain (BEP20), Ethereum (ERC20), Tether (OMNI), and Tron (TRC20).

So be careful: if you choose the wrong network, you will lose your funds. For example, your funds will be lost if you try to send Omni USDT to an ERC20 USDT address.

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Advantages and disadvantages of Tether

It is not surprising that any stable coin has its advantages and disadvantages, so it is worth highlighting the strong sides of the Tether stablecoin as well as its weaknesses. So, let us consider the beneficial aspects of Tether.

Full transparency of settlements. The creators of the asset claim that they constantly analyze the correspondence of the money in the company’s vault and the total balance of client accounts. Information on both indicators is in the public domain and is regularly updated.
High speed of transactions. Sending and receiving coins takes a minimum amount of time. This payment format is much faster and more convenient than transfers in dollars, especially if the transaction participants are located in different countries.
Low volatility. A significant advantage for those looking for a capital preservation tool. The token rate does not jump as much as the price of BTC, and there are practically no fluctuations.
Low commission. Transactions between two Tether accounts are pretty cheap (depends on a used protocol).
The use of different blockchains. USDT is transferred to any wallets that support this token. It is more convenient to use this way of money transfer than to transfer even fiat currency (in particular, the dollar).
A high level of stability in the market. The most demanded fiat currency backs this cryptocurrency in the world.
Good protection against attacks from fraudsters and hackers. The coin has received all the benefits of the highest protection from blockchain technology.
Popularity. Many traders use Tether. And you can find many crypto platforms on the Internet that accept it as a trading asset or a payment unit.

However, there are a few things (negative ones) about Tether that should also be considered:

Risks related to the problem of reservation. Although it is believed that the value of USDT is always equal to $1, sometimes there are noticeable fluctuations: in April 2017, the USDT exchange rate momentarily dipped to $0.91; in December of that year, Tether reached $1.1.
The lack of mining capabilities. As mentioned above, this digital currency cannot be mined, and many users have claimed it is a significant disadvantage.

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Is Tether safe?

In July 2021, the U.S. Department of Justice began an audit of the company’s management. The agency suggested that top executives may have concealed links between some transactions and the cryptocurrency at an early stage of Tether’s development.

Another U.S. agency, the Commodity Futures Trading Commission, fined Tether $41 million in October 2021 for false information about the token’s collateral.

The Bloomberg investigation says the only bank that has confirmed cooperation with Tether is Deltec Bank & Trust in the Bahamas. Its owner Jean Chalopin claims to have studied the company for months before cooperating.

An investigative writer asked Chalopin if he could confirm that reserves backed the entire USDT issue. The bank owner laughed in response and then said that Deltec holds about $15 billion in reserves, with the rest presumably held by Tether at other banks.

Bloomberg later obtained a detailed report on Tether’s reserves. It turns out that billions of dollars in reserves are short-term loans to large Chinese companies. As the agency notes, investment funds have traditionally avoided such methods. If a small percentage of these loans become irrecoverable, the value of USDT would fall below the dollar. And this, in turn, could provoke a massive sale of stable coins by users. Tether won’t have enough money to pay it back in that case.

With all that said, USDT is the largest stable coin, and its holders generally have no worries.

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How can you use Tether?

If you have already stepped into Tether, it is always interesting to know how you can use it. Like any other digital cryptocurrency, it can be stored in digital wallets, exchanged in exchange services, and transferred among users. And, of course, Tether (USDT) can be withdrawn.

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How can you buy Tether?

Among many users, the Tether token is one of the most popular digital currencies, pegged to the fiat currency with a ratio of 1:1. So, the last questions remain - where and how can you buy Tether?

First and foremost, it is required to find a service or website that allows you to buy Tether, whether it is USDT, EURT, or some other token related to it. It is advisable to use the services of Utorg where you can do so and with ease.

While visiting Utorg, on the main page, you need to select the currency pair, like USD-USDT, and fill in the required lines (amount of money you want to put in/amount of tokens you want to receive and your Tether wallet’s number). After doing this, you need to click on Buy USDT and make a payment.

If it is your first time on Utorg, you will be asked to go through a KYC verification process, which takes a few minutes of your time (up to 3 minutes). The process is a piece of cake - upload the copy of your ID card and rotate your head a few times in front of your web camera. If you already have this verification, you do not need to worry about it.

After doing this, it is necessary to wait a little time, and USDT will come to your wallet.

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Conclusion

The Tether token is a significant and practical asset that harmoniously combines the best features of cryptocurrency and fiat money. Due to its features, it has earned immense popularity in the cryptocurrency community. Traders constantly use it in their trading, and ordinary users use it for interpersonal settlements.

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FAQ

1. What is the purpose of Tether?

The essential idea of Tether is to provide users with an opportunity to have a safe digital asset that can maintain a stable valuation. Currently, Tether (USDT) is pegged to the U.S. Dollar with a 1 to 1. Additionally, it has a few more tokens pegged to other fiat currencies.