Tether (USDT): the cornerstone of cryptocurrency liquidity
Tether is not just the most well-known stablecoin. It is a systemically important element of the crypto market, a kind of 'dollar of the crypto world.' Its main function is to provide stability in an unstable environment, acting as a safe haven and a settlement tool between exchanges, protocols, and traders.
How it all began
Tether appeared in 2014 under a different name — Realcoin. Its launch was handled by Brock Pierce and other participants of Bitfinex. The idea was simple: to create a token 'pegged' to the dollar at a 1:1 ratio to facilitate fast transactions within the crypto ecosystem without the need to constantly revert to fiat. A few months later, the project was renamed Tether (USDT), and growth began.
How it works: reserves and promises
The main principle is that each USDT must be backed by an equivalent dollar or equivalent in Tether Ltd reserves. These reserves may include cash, deposits, government bonds, commercial papers, and other assets.
However, Tether did not publish full audits for a long time, and when it finally did — it turned out that a large part of the reserves was not in dollars but in riskier instruments. This triggered a wave of criticism and even lawsuits with US regulators. In 2021, Tether paid an $18.5 million fine in a New York Attorney General case for 'false claims' about reserve backing. After that, the company promised more transparency and began to publish reports regularly.
The role of USDT in the crypto universe
Despite all the scandals, USDT remains the most popular stablecoin. It is traded on every major exchange, used in most DeFi protocols, and turns over tens of billions of dollars daily.
It serves as a 'unit of account' — most cryptocurrencies are traded in pairs with USDT rather than with dollars. This gives traders the opportunity to 'go into stable' without actually converting to fiat. This is especially important for regions with limited access to banking services.
Interesting fact
Tether is actively used in DeFi chains as a liquidity and collateral element. It also plays an important role in arbitrage operations between exchanges. It is thanks to USDT that rapid capital movement between platforms is possible in DeFi — essentially, it is the digital oil for the moving gears of Web3.
