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It is a popular cryptocurrency that is categorised as a stablecoin. It is very different from Bitcoin and other cryptocurrencies. Stablecoins are digital currencies that have their value pegged against a real-life asset like gold or currencies like Euro and the USD. Crypto enthusiasts have used Tether, also known as USDT, for several years to leverage their trades. It has its value attached to the U.S. dollar. Theoretically, stablecoins should remain unaffected by market volatility.

What makes it unique?

Crypto traders use Tether for steady liquidity to get out of trades that are extremely volatile and lead to unpredictable losses. Stablecoins, as the name suggests, provides stability to investors who like to invest in a digital currency with a consistent value that is backed by a real-world asset. Tether is well-known for this. However, it is one of the most debatable and controversial stablecoins.

There are a plethora of stablecoins with their values pegged to the U.S Dollar. One of the prime competitors of Tether is USD Coin, also known as USDC. However, Tether has a larger market cap than any other stablecoin. Furthermore, Tether has a very high daily trading volume, reportedly the highest amongst all cryptocurrencies. Hence, it plays a pivotal role in the digital token ecosystem. Ease of trading and availability on all the top crypto apps add to the popularity and trading volume of Tether. It has multiple tokens pegged to gold, Euro, and Yuan too. However, USDT is the most popular and significant crypto token.

Advantage of Stablecoin as opposed to other cryptocurrencies

One of the biggest advantages of owning a stablecoin is that it maintains a predictable price range under normal circumstances. Since they have their value attached to a real-world asset stablecoins are not as volatile and perform differently than other crypto investments. Here are the most common uses of Tether:

  • Easy transfer of funds from one crypto exchange to another.
  • Making payments digitally to anyone, anytime, and anywhere in the world.
  • Safe storing of funds on exchange to quickly trade Tether for other cryptocurrencies.
  • It provides the highest interest rate on loans. So if you loan out your Tether, you can earn more than 10% interest.

Risks Associated with Tether

While stablecoins are considered less risky than other cryptocurrencies, there are several risks associated with Tether. Here are some of them:

Centralised Project: Tether is a centralised project that builds trust in a single entity or company. Failure of faith or together the entity will land Tether into trouble. 

Lack of Transparency: Tether has been put in the spot of business malpractices. It has misrepresented the reserves in the past and refrained from giving out clarity and detailed information for several years. Transparency has been a big issue with Tether. However, they are working on that and are now regularly publishing reports with all the information on their website. But, they cannot undo the previous malpractices.

Unclear regulatory status: Tether has been swift in moving from one banking partner to another, which has definitely questioned the legitimacy of the project and its legal standing.

How Does it Work?

USDT is built on crypto-native infrastructure, blockchain. It operates using the Omni layer protocol, records all the transactions on the Tether blockchain, and stores them in Tether’s database. Being a stablecoin, it automatically inherits the benefits of being a part of the financial system. It inhibits each chain of transactions. When a USDT buyer deposits fiat currency into Tether’s reserve, it issues the corresponding amount of digital tokens. USDT can then be stored, exchanged, and transacted. Like Bitcoin, anyone can make transactions with USDT using it to pay at platforms where it is accepted.

For example, if a buyer/investor deposits $1000 in the Tether reserve, then keeping up with a 1-to-1 dollar parity, he will receive 1000 Tether tokens. Ironically, when a user redeems USDT for fiat currency, the coins are removed from circulation and destroyed.

Is Tether a Good Investment?

Let us start by saying that Tether is not an investment. This is because it has been developed to maintain a price of $1. Hence, there won’t be any considerable rise or decline in the value like stocks or other cryptocurrencies. But, Tether can be used to generate passive income by lending it on interest. Multiple platforms provide competitive lending rates for Tether. It enables you to earn more interest than a regular savings account.

But does that mean Tether is risk-free? No, it is far from being risk-free. Cryptocurrencies, irrespective of their category, come with a certain amount of risk pegged to them. In the case of USDT, it is not insured like money in bank accounts. Since they are designed to maintain the value, they are not an excellent investment prospect as they aren’t meant to increase in valueThatng said, Tether simplifies business transactions and is far easier to store and manoeuvre than Bitcoin. The ease comes from the fact that the value of Bitcoin changes daily, making it incredibly difficult to create pricing schemes and close business deals. 

A solid reason to own a stablecoin like Tether would be the user’s drive to invest in cryptocurrencies and keep volatility at bay. This is not to say that USDT is a safe investment but a less risky investment than other cryptocurrencies.

Concluding Thoughts!

It came into existence in 2014, and is one of the older cryptocurrencies in the market. It has shown immense stability and gained the trust of many exchange platforms that offer USDT as a trading option. The future of cryptocurrencies or stablecoins like Tether depends on the level of transparency they maintain and the trust they gain. Cryptocurrency investors need to remember that the crypto landscape is currently unregulated and that changes are being made daily. However, it has the potential to become widely accepted for online transactions. It is likely to become of the most popular cryptocurrencies on crypto exchanges. Click here to learn more about the Top 10 cryptos in 2023.

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