Tether, also known as USDT, is a digital currency that has become a popular choice among cryptocurrency traders and investors. Unlike other digital currencies, Tether is attached to the value of the US dollar, meaning that its value remains stable and does not vary as much as other cryptocurrencies. This stability makes Tether an appealing option for those looking to avoid the volatility of the crypto market while still participating in it. If you are unfamiliar with Tether and USDT, read on to learn what it is, how USDT works, and what backs its value.
What is Tether?
Tether is a digital token that is allied to the value of the US dollar. It is built on top of the Bitcoin blockchain, using the Omni Layer Protocol. This means that Tether can be transferred and traded on various cryptocurrency exchanges, just like Bitcoin and other digital currencies. The main difference is that Tether is designed to maintain a stable value, while other cryptocurrencies can be highly volatile.
The concept of Tether is to offer a stablecoin that can serve as a means of exchange in the crypto market. This is significant as the volatility of cryptocurrencies makes many individuals reluctant to invest in them. Tether offers a way for people to participate in the cryptocurrency market without having to worry about the value of their investments fluctuating dramatically.
How does USDT work?
Tether operates on a 1-to-1 ratio with the US dollar. This implies that Tether tokens in circulation are matched by an corresponding amount of US dollars held in backup. When someone wants to buy Tether, they send US dollars to Tether's reserve, and in return, they receive an equivalent amount of Tether.
When someone wants to redeem Tether for US dollars, they send the Tether back to Tether's reserve, and in return, they receive an equivalent amount of US dollars. This progression is known as "redeeming" Tether for US dollars. Tether's reserve is held in a variety of different forms, including cash, cash equivalents, and other assets that can be easily converted into cash.
What Backs the Value of USDT?
Tether's value is backed by the US dollars held in reserve. Tether Limited, the company behind Tether, has audited its reserve to prove that it holds adequate US dollars to back all of the Tether in flow.
However, it's important to note that any physical assets or commodities do not back Tether; the trust in the company and the auditing process only backs its value.
Conclusion
Tether is a cryptocurrency that maintains a stable value by being pegged to the US dollar. It is built on top of blockchain technology, making it a digital token that can be transferred and traded on various cryptocurrency exchanges. Its value is backed by the US dollars held in reserve and the trust in the company and the auditing process.
