What is USDT (Tether)? How does it work, and what gives USDT value? – CryptoMode

Tether is a cryptocurrency that is pegged to the value of fiat currencies. The digital token is issued by Tether Limited, an organization incorporated in the British Virgin Islands (BVIs). It can be stored in any wallet that supports ERC20 tokens. Tether allows users to keep their cryptocurrency holdings stable and backed by fiat currency as well as other cryptocurrencies. This stability makes it popular among traders who use it to buy cryptocurrency from exchanges with little trading fees and a lower risk of price fluctuations. Read this cryptocurrency overview to know everything about Tether — how it works, what gives it value, and the future of this crypto asset.

What is USDT?

Tether is a digital token that is pegged to the value of fiat currencies like the USA/EN dollars, euros and Japanese yen. Tether is the name of the software that manages the digital tokens. You can think of it as software that manages digital tokens that are pegged to fiat currencies. The term tethering is used to identify the process of tying a digital token to its fiat equivalent. This means that the value of the digital token is kept stable by the value of fiat currency. For instance, if $1 is tied to a certain amount of USDT, one USDT token is then created and all USDT holders can exchange cryptocurrency on platforms like Changelly for $1.

How USDT (Tether) works?

The USDT coin is a digital currency that operates on the Ethereum network. It is not issued by any bank or government and has no physical backing, which gives it its value. The issuer issues tokens according to how much reserves it holds at any point of time against the tokens issued in circulation. In other words, there should be an equivalent value of fiat money held against every unit of Tethers in circulation at all times. If you hold $1 worth of USDT, you can trust that the company holds $1 worth of fiat currency in their reserve account as well. 

Tether also has a pink coin project. It is similar to how Bitcoin operates as a decentralized payment system. However, there are a few differences. Bitcoin is a cryptocurrency, but what Tether does is create a new cryptocurrency, called a “Tether token” (USDT).

What gives USDT value?

USDT is backed by cash reserves that are equivalent to $2.5 billion. Every time customers buy USDT (Tether) or sell it, the reserves are automatically transferred. This means that traders can always redeem the tokens at any time. However, the company has faced criticism over its source of funds. The criticism stems from the fact that the company has never publicly disclosed how it operates or how it obtains its cash reserves. Still, the company has not denied these allegations. 

In addition to USDT being backed by cash reserves, other factors determine its value. These factors include: 

  • World demand for USDT. If many traders are holding USDT, then the value will increase. 
  • Interest rates. The interest rates on USDT tokens are set and maintained by the company. If the company decides to increase the interest rates, the value of USDT will increase. 
  • Price of the underlying asset. If the price of the underlying asset falls, then the value of USDT will fall as well. 
  • Supply and demand. The supply of USDT is always maintained at $1 billion. When demand for USDT increases, then the price increases as well.

Tether issuance and its pros and cons

Tether has issued a total of 110,984,847 tokens, some of these were distributed as rewards for holding tokens. The rest of the tokens are held by the company. The tokens are created when a customer buys or sells USDT. The company uses the funds to back the USDT tokens. The tokens are also used to maintain the value of USDT. 

Tether is a centralized company, which means that one person holds the power to decide the future of the company. This is a concern because the centralized nature of the company raises the risk of it being hacked.

Tether in the future

Tether is listed on many cryptocurrency exchanges. The largest of these include Binance and Bitfinex. USDT is also available as an option on many platforms, including Coinbase and Changelly. This is especially useful for people who want to exchange cryptocurrencies but don’t have a specific intent. The growing interest in cryptocurrency has helped USDT become a popular trading option. The trading volume of USDT is constantly increasing. Around 98% of the trading volume is coming from Japan. People are also using USDT to purchase goods and services using tokens. The growth in popularity of USDT is reflective of the growing demand for stable coins.

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