Cryptocurrency exchange

Could Bitcoin-Backed Stablecoin Be Tether’s Next Big Move? Here is What This Crypto Analyst Believes

what is tether

The decline was largely driven by investors’ fears that if one stablecoin can break its peg, others can, too. Based on its creation, the TerraUSD stablecoin relies on supply and demand market forces and LUNA’s ability to absorb price volatility to maintain its price peg. Tether and TerraUSD (UST) are both stablecoins pegged to the U.S. dollar, but the two cryptos maintain their value using completely different methods.

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what is tether

Before diving into Tether, let’s first understand the concept of stablecoins, which are a type of cryptocurrency designed to have a stable value, unlike Bitcoin and Ethereum, which are known for their price volatility. USDT operates with a centralized entity, Tether; holding the reserves, issuing the assets, and maintaining the peg. Every major cryptocurrency exchange offers USDT, plus you can use it on countless platforms to buy, sell, swap, and pay for crypto apps and services. One of the most popular ways to guarantee a stablecoin’s peg is by backing the coin with fiat reserves. One of the most popular stablecoins using this method so far is USDT, a stablecoin pegged to and backed by the United States Dollar.

  • In May 2023, Tether’s USDT stablecoin hit an all-time high in market capitalization, surpassing its previous peak level of $83.355 billion in May 2022, according to CoinGecko data.
  • Tether’s history of transparency about USDT’s reserve backing has not always been clear or consistent.
  • That means that when you buy USDT this way, you won’t have ownership over the private keys to your assets.
  • Traders exploited the algorithm that used Luna to maintain the value of UST in order to make quick profits, and the entire system crashed over a matter of days.
  • Plus, these transactions are processed much faster than traditional banks— without any additional barriers across borders and with much lower fees.

How To Invest Money

what is tether

At most exchanges, the cheapest way to deposit money and buy crypto is through a bank account transfer. That means 1 USDT is designed to have a value of $1, and it normally does, although there have been price fluctuations in the past. On its website, Tether publishes daily reports on the amount of reservers it holds versus the number of USDT tokens that are outstanding.

  • This event occurred due to the poor management of user funds held in the exchange, which, when discovered, led to a bank run that promptly caused the company to go insolvent.
  • A deep dive into Tether, the company that issues leading stablecoin USDT, and recently announced it will be buying Bitcoin every month.
  • Hedge With Crypto aims to publish information that is factual, accurate, and up-to-date.
  • Of the 76%, commercial paper and fiduciary deposits made up 65% and 25% respectively; the figures indicated that less than 3% of Tether’s reserves were held in cash.
  • The transaction fees can be unpredictable, as can the price of the coin itself due to market volatility.

How Do Tether Tokens Work?

And it’s not like stablecoins pegged to assets without reserves are favorable over fiat or commodity-backed stablecoins either. Algorithmic stablecoins have historically had much worse problems maintaining their pegs. USDT is a pegged cryptocurrency, meaning its value is only as volatile as that of the U.S. dollar.

what is tether

Alleged price manipulation

  • For example, the price of USDT has exhibited some volatility, reaching highs of $1.20 and lows of $0.91.
  • Instead, it leverages the infrastructure of other established blockchains to host its tokens.
  • While we do go to great lengths to ensure our ranking criteria matches the concerns of consumers, we cannot guarantee that every relevant feature of a financial product will be reviewed.
  • USDC only holds cash and short-term U.S. government bonds, according to its monthly report.
  • Essentially this meant Tether miscalculated the number of tokens in circulation, and when that single loan was executed, it removed the liquidity from the system and revealed the imbalance.
  • An investor needs to be sure that the purchasing power of a currency will appreciate or remain stable in the future.

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