Tether

WHAT IS TETHER?

FunctionToken currency – USDT (₮)
Ledger born6/10/14
Timestamping schemeStablecoin
Circulating supply8.5 billion
Supply limit7.5 billion

Tether is perhaps the most popular and most widely used stablecoin cryptocurrency available on the market today.
Like every other altcoin to appear since the advent of Bitcoin, Tether was created for a specific purpose and designed to fix what was perceived as flaws in cryptocurrency genetics.
A specific flaw sparking Tether’s creators into action was cryptocurrencies’ general vulnerability in price, especially when compared to traditional markets.
Commodities like stocks and fiat currency being traded on traditional markets have a large volume of investors making transactions every day.
The larger the body of investors, the less volatile a commodity’s price will be.

While cryptocurrency remains an unknown for many and a new player on the international market, it will be common in almost all cryptocurrencies that a relatively small market cap will make their prices fluctuate violently.
While not the first of its kind, Tether developers attempted to produce a stablecoin token capable of maintaining a steady worth, connecting its value with the US dollar.
In design, it means Tether users can enjoy the transaction speeds and decentralisation benefits of using cryptocurrency, while also appreciating the price stability of a stable fiat currency.

HOW IS TETHER USUALLY USED?

While this connection with traditional currency offers Tether its most attractive attributes, it remains rare for users to exchange fiat currencies with its tokens.
Tether is generally used as a method of exchange for cryptocurrency, specifically because of its stable price characteristics.
Moving the risk of investing in a highly volatile cryptocurrency is impossible but picking a sharp fall and avoiding the fall can be achieved by fast and cheap exchange to USDT.

The ease of an exchange of this type allows investors to better move their exchange from currency to currency when prices are especially volatile, and Tether is often the ‘neutral’ or safe zone currency of choice.
It is also ideal for those invested in cryptocurrencies to provide a bridge between their investment and fiat currency.
Not all cryptocurrencies allow a straight exchange for fiat currency, so Tether provides a stable connection between the two.

HOW DOES TETHER PROVE ITS WORTH?

The core functionality of Tether, like other stablecoins, is its connected fiat value, which is achieved through a fiat collateral peg.
Tether can only function as a stablecoin if investors trust its value corresponds with its worth, in this case 1 ₮ = US$1.
While the trust element required to keep this ledger maintained may expose the cryptocurrency to the same volatility as regular PoW or PoS currencies through supply and demand, Tether nullifies the risk by backing its coins with collateral.
Because the coin’s table price is so important, many other token-based stablecoin cryptocurrencies also employ the same tactic to protect their most valuable asset.
This can also be achieved using other types of fiat currency, gold or even other types of cryptocurrency.
Tether says it holds US$1 for every USDT in circulation, maintaining a 1-for-1 rate.

While the fiat collateral peg achieves its purpose, holding such a large body of fiat currency can also produce some issues.
While the company has access to its collateral, it technically cannot use it, as any withdrawal will diminish the cryptocurrency’s value, and the trust its users have in the asset.
There is also a risk of Tether losing its worth entirely while its value is hinged on this collateral if its accounts are closed because of maladministration of regulatory measures.
Even while the collateral sits safe and untouched, it is always difficult to prove its existence, so there will always remain some doubt from users.

fiat collateral pegfiat collateral pegA function used in an attempt to maintain a stablecoin’s worth through an algorithmic connection with another currency, usually fiat currency like the US dollar. In theory, the stablecoin’s worth is supposed to maintain its value in correlation with that currency.

WHAT IS TETHER’S ALGORITHMIC PEG?

Tether adds an extra layer of stability in its value with an algorithmic peg, which manipulates its blockchain protocol accordingly to introduce and withdraw coins from the market.
If demand for USDT is high, and there is pressure on its per-unit price of equivalent US$1, then the system adjusts its algorithms to add more currency to the market.
It works in the same way with a drop in demand, with Tether’s programmers removing its currency supply to maintain its value.
This price manipulation technique is why Tether’s current circulating supply is a billion units beyond its original forecast limit.

While Tether’s multiple methods of stability act to further sure up its price, there are criticisms of its long-term viability.
The pegging of a currency has failed consistently in recent history due to their volatility to attack and required costs and efforts in maintaining them.
There are also questions over Tether’s decentralisation attributes, as unlike a PoW or PoS cryptocurrency, a stablecoin’s benefits in stability come at the cost of requiring a company to maintain it.

algorithmic pegalgorithmic pegManipulates a blockchain’s protocol to introduce and withdraw circulating coins to and from the market to control a cryptocurrency’s price.

FAQ

What is Tether?
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Tether is a popular cryptocurrency and one of the original stablecoins created to tackle cryptocurrency price vulnerability. Tether developers designed their token to maintain a steady worth by connecting its value with the US dollar.

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