Key Takeaways:

What Is a Stablecoin?

Before diving into Tether, let’s first understand the concept of stablecoins, which are a type of cryptocurrency designed to have a stable value, unlike Bitcoin and Ethereum, which are known for their price volatility. 

The value of a stablecoin may be pegged to any fiat currency, but the majority of stablecoins are pegged to the US dollar (at the time of writing). Stablecoins like Tether provide a measure of stability for traders in the crypto market. They may offer a way to mitigate the risks associated with the price fluctuations of other cryptocurrencies, making them a popular choice for those who want to trade or hold digital assets without being exposed to constant severe volatility.

Learn more about stablecoins and how they work.

What Is Tether?

Tether (USDT) is a cryptocurrency stablecoin pegged to the US dollar. Owned by iFinex, the company behind cryptocurrency exchange Bitfinex, it is the largest stablecoin by market capitalisation (at the time of writing).

Tether aims to maintain a steady valuation by tying its tokens to traditional currencies like the US dollar and euro. It is used by crypto traders to transfer between different cryptocurrencies or fiat currencies. Tether maintains its stability through currency reserves, which consist of a mix of cash, bonds, loans, commodities, and digital tokens, and publishes daily reports on said reserves.

How Does Tether (USDT) Work?

USDT is specifically designed to be pegged to the US dollar in order to remain relatively stable and equivalent, so each token represents one US dollar. To achieve this stability, Tether Limited, the company behind Tether, claims to maintain reserves of US dollars that are equal to or greater than the number of USDT tokens in circulation. These reserves are meant to back the value of each Tether token, providing confidence to users that they can redeem their tokens for US dollars at a 1-to-1 ratio.

How Is Tether Backed?

Tether claims to back each Tether token with reserves that include cash, cash equivalents, and other assets. The company periodically publishes reports that provide information on the composition and breakdown of its reserves. These reports aim to provide transparency and give users insight into the backing of their Tether holdings.

It is important to note that, while Tether claims to have 1-to-1 reserves in order to maintain a 1-to-1 peg with the US dollar, the actual composition and valuation of its reserves may vary. The company has faced scrutiny in the past, as critics have argued that the lack of independent audits raises concerns about the transparency of Tether.

How to Use USDT

As a stablecoin, Tether is used in various ways within the crypto ecosystem. Below are some common use cases for USDT, and stablecoins in general:

It is important to note that, while Tether offers a level of stability and convenience, it is subject to the risk of depegging, as it is still a cryptocurrency and comes with the same risks associated with the broader crypto market, such as regulatory uncertainty and market volatility.

How to Trade USDT

For those interested in trading USDT, follow the steps below:

Pros and Cons of Including USDT in a Crypto Portfolio

The decision to include Tether in a crypto portfolio depends on individual goals and risk tolerance. Below are some factors to consider, amongst others:

Ultimately, a stablecoin’s stability is not guaranteed, and the decision to include Tether in a portfolio should be based on careful consideration of individual trading goals, risk appetite, and overall market conditions. It is always recommended to consult with a financial advisor and do thorough research before making any decisions.

Conclusion

Tether (USDT) is a stablecoin that aims to provide stability and reliability in the volatile world of cryptocurrencies. It offers a pegged value to the US dollar, making it a popular choice for traders looking to mitigate risk and volatility. When considering including Tether in a crypto portfolio, it is important to carefully evaluate the risks and benefits based on individual goals and risk tolerance.

Due Diligence and Do Your Own Research

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Although the term ‘stablecoin’ is commonly used, there is no guarantee that the asset will maintain a stable value in relation to the value of the reference asset when traded on secondary markets or that the reserve of assets, if there is one, will be adequate to satisfy all redemptions.

In addition, the Crypto.com Exchange and the products described herein are distinct from the Crypto.com Main App, and the availability of products and services on the Crypto.com Exchange is subject to jurisdictional limits. Before accessing the Crypto.com Exchange, please refer to the following link and ensure that you are not in any geo-restricted jurisdictions.

Past performance is not a guarantee or predictor of future performance. A stablecoin can lose its peg, and you could lose all or a substantial amount of your purchase price. When assessing a stablecoin, as with any crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.

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What Is Tether (USDT)? Understanding the US Dollar Stablecoin

In this article, we explore what the Tether stablecoin is, how it works, and how to use it in crypto trading.

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