What is Tether (USDT)?

What is Tether (USDT)

Before introducing Tether (USDT), let’s talk about several concepts related to it.

Legal Tender

Legal tender means that the currency does not use some valuable physical objects as the standard of the currency. It does not represent real commodities or goods, and the issuer has no obligation to convert the currency into physical objects. It only relies on government decrees to make it legal currency.

The value of fiat currency comes from the owner’s belief that the currency will maintain its purchasing power in the future, but the currency itself has no intrinsic value.

Such as USD, EUR, JPY, RMB, etc. (Gold and silver should be called commodity currency)

Tether (USDT)

Tether (USDT) is a token Tether USD (hereinafter referred to as USDT) based on the stable value currency U.S. dollar (USD) launched by Tether. 1USDT=1 USD.

Tether claims to strictly abide by the 1:1 reserve guarantee, that is, for every USDT token issued, its bank account will have a fund guarantee of 1 USD.

Any user who holds USDT can exchange tokens for fiat currency at a ratio of 1:1 (deducting remittance fees) as long as they complete user authentication at Tether.

Currently supports US dollar (USDT) and euro (EURT), which are hosted in different banks, and will support Japanese yen in the future.

The legal tender is the reserve, and the tokens on the chain are the newly issued fiat currency, so the company Tether acts as the central bank.

At present, among the exchanges that have listed USDT, the price of USDT and U.S. dollar (USD) is basically anchored at 1:1, with little fluctuation.

(In fact, a small amount of volatility has also occurred, but it is often due to liquidity restrictions, or the inconvenience of traders, unwillingness to go to Tether for user authentication, and traders who do not have the conditions to receive USD returned by Tether.)

In addition, users can conduct fund inquiries on the Tether platform to ensure transparency.

Key points: In a simple sentence, USDT is equivalent to the same amount of U.S. dollars, that is, 1USDT=1 U.S. dollar. It is a good value-preserving token in the volatile cryptocurrency market.

Advantages and Roles of USDT

Stable: Safe Haven

There is no way to cash in fiat currency on the currency exchange platform, so if BTC or ETH plummets, there is no way to hedge, because there is no way to short positions.

But with USDT, when the price of the currency falls, we can immediately exchange the currency for USDT to ensure that the asset does not shrink.

This is of great significance to the currency trading platform.

Equivalent: Reference the Currency Price

USDT and U.S. dollars are equivalent, 1USDT=1 U.S. dollar.

So how much USDT each currency is worth, it means how much its unit price is in USD.

Tether: Withdrawal

Because the purpose of the Tether project is to bundle USDT with USD, USDT can of course also be used for USD withdrawal.

But its process is also very complicated, which is the focus of supervision.

Risk of USDT

The biggest risk of using USDT is that the issuance of Tether is completely centralized, that is, issuance, acceptance, regulatory risks, and operational risks are all concentrated in Tether.

Regarding the regulatory issue, once the Tether company is shut down, the USDT in the market will face the risk of acceptance and will immediately depreciate.

On the other hand, the integrity of Tether itself is also a risk. Because unlike the transparent and open blockchain, the US dollar as the security deposit is stored in the bank, and this data cannot be made public. So it is not transparent if Tether misappropriated the funds.

Of course, in the financial market, everything is risky, at least USDT can be used as a safe haven at present.

At present, the trading volume of USDT ranks fifth among all currencies in the world, second only to BTC, ETH, LTC, and BCH.

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