What is Tether?

Acording to the Merrian Webster dictionaty, tether is a line (as of rope or chain) by which an animal is fastened so as to restrict its range of movement.

The idea of a cryptocurrency tightly linked to another asset appear in 2012 in an paper by J. R. Willett called "The Second Bitcoin Whitepaper". The author wrote "We claim that the existing bitcoin network can be used as a protocol layer, on top of which new currency layers with new rules can be built without changing the foundation". Further the author claimed, among other, that the new layer would "fix the two biggest barriers to widespread bitcoin adoption: instability and insecurity".

Originaly launched in 2014, under the name of Realcoin, USDT is a stablecoin. A stablecoin is a cryptocurrency which value is pegged to a reference asset like traditional currencies, exchange-traded commodities, or even another cryptocurrency. Tether (USDT) is pegged to the United States dollar (USD), meaning that keeps an almost constant 1:1 relation with the USD. In other words 1 USDT is equal to 1 USD.

Tether achieves this by storing USD. When a user deposits USD with Tether Limited (i.e. buys USDT), they receive an equivalent amount of USDT tokens, which they can use in the crypto ecosystem. Users can redeem (sell) USDT for USD through Tether Limited. Upon redemption, the equivalent USDT tokens are burned (removed from circulation). Transactions involving USDT are recorded on the blockchain where it operates, providing transparency and traceability.

Tether is a token not a coin. The difference is that, while blockchain protocols have their own coins, tokens are build on top of a base blockchain protocol.

This feature makes Tether appealing to traders who want to swiftly switch between cryptocurrencies and traditional currencies, allowing them to trade without being exposed to the volatility of other cryptocurrencies.

USTD was initially issued as a token on the bitcoin blockchain via the Omni Layer protocol. Now USDT is issued on various blockchains (see "What are Tether tokens and how do they work?") including: Algorand, Avalanche, Celo, Cosmos, Ethereum, EOS, Liquid Network, Near, Polkadot, Solana, Tezos, Ton, and Tron.

USDT, at the date of writing this blog, is the biggest stablecoin with a market capitalization of just under $140,000,000,000 ($140 billions).

Tether (USDT) plays a crucial role in the cryptocurrency ecosystem as a stable, widely accepted, and highly liquid digital asset. It has become a bridge between the traditional financial system and the world of cryptocurrencies. However, users should remain aware of the regulatory and transparency concerns surrounding Tether and consider these risks when using USDT for trading or as a store of value.