What is Tether (USDT), How Does It Work and Why They Keep Printing More?

What is Tether, How It Work, Why They Keep Printing USDT?

What is Tether (USDT)?

Tether is a new breed of blockchain-based cryptocurrency that is tied to a fiat currency (USD) to maintain stability. They’re often referred to as Stablecoins because they aim at keeping cryptocurrency stable.

Tether was designed for each token to be represented by an underlying fiat currency. For instance, USD, Euro, and Japanese Yen among others.

The fixing of Tether value to that of fiat currency is aimed at keeping cryptocurrencies valuation stable. It is common knowledge that popular cryptocurrencies such as Bitcoin and Ethereum are quite volatile, hence experience wide swings in prices.

The stability of Tether makes it a good medium of exchange and a mode of storage of value. As opposed to being used as a medium of speculative investments as seen in normal cryptocurrencies like Bitcoin.

How does Tether (USDT) work?

The technical structure of Tether is that it is based on the Omni Platform. The platform provides the foundation from which various digital assets supported. The stablecoin’s built on Bitcoin (BTC) and Ethereum (ETH) blockchains.

The Tether coin is maintained in a state where every 1 USDT in existence corresponds to $1 USD sitting in deposits. That is 1 USDT equals $1 USD. For instance, if you have 10 USDT, then you must be able to redeem it anytime for $10 USD.

Currently, a user can only convert USDT to US dollars through a few exchanges or through Tether itself. However, Tether requires a minimum fee of $100,000 to convert, in addition to charging some significant fees on the transaction.

It means that because 1 USDT equals $1 USD. Crypto exchanges often required to keep a reserve of dollars to back every USDT in existence.

Why do they keep printing USDTs?

Tether as crypto may appear lower in market capitalization compared to Bitcoin and Ethereum. However, the stabelcoin is the most traded cryptocurrency in terms of volume.

As of the time of writing this article, Tether had a trading volume of $1.74 Billion against Bitcoin’s $1.33 Billion and Ethereum’s $270 million. That’s according to data and market intelligence website, Messari.

The extraordinary demand for USDT is because it is seen as stable crypto that investors can use to store value. Considering that the stablecoin’s price is pegged to the US dollar.

Its demand is always up because investors see it as a way of storing value because of its stability, based on the centralized fiat currency. Traders can use Tether to manage the extreme volatility common with cryptocurrency prices.

Reports also indicate that the demand for Tether is driven by OTC traders looking to circumvent China’s strict capital controls. Which limit how much money an individual can moved out of the country.

Why not simply stick with fiat currency?

The truth is that Tether provides important features such as instant transactions and cost-effectiveness. Therefore, traders can take advantage of the arbitrage opportunities to make a profit from trading their cryptocurrencies instantly, 24/7.

In summary, the Tether platform must print USDT in volumes to meet its increasingly high demand, because it is a better alternative to fiat currency.

Conclusion

Tether is a member of the stablecoins family. Although Tether had no collateral, it acts similar to that of a reserve bank to maintain the necessary supply of Tether (USDT) tokens, as dictated by the economic situation.

Tether design is meant to bridge between fiat currencies and cryptocurrencies. Thus, providing users with stable, transparent and minimal transaction fees.

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