What is USDT (Tether)?

USDT, known as Tether, is a cryptocurrency stablecoin issued by Tether Limited Inc. launched in October 2014. USDT ties its value to the US dollar at a 1:1 ratio, making its price stable compared to the volatile digital currency network.

How does it work?

Pegged to the dollar: Tether Limited holds cash and cash equivalents (estimated at about $118.4 billion as of August 2024, including $5.3 billion in surplus reserves) as collateral for every USDT issued.

Supported networks: USDT can be minted across several blockchains, most notably Ethereum (ERC-20), Tron (TRC-20), and Bitcoin Omnicore, among other major networks.

Main uses:

1. Trading and hedging: Traders use it as a safe haven from the volatility of Bitcoin and other digital currencies.

2. International transfers: It facilitates sending money quickly and at low costs without a banking intermediary.

3. Liquidity in exchanges: It constitutes over 70% of trading volume among stablecoins.

Challenges and controversy:

Transparency and reserves: Despite announcements of quarterly reports, Tether has not undergone a full independent audit, raising questions about the ratio of actual cash assets to commercial paper and secured and unsecured loans.

Fines and regulation: The U.S. Commodity Futures Trading Commission (CFTC) imposed a $41.6 million fine on Tether in October 2021 for providing inaccurate information regarding USDT's 100% cash backing.