Tether is what’s called a stable coin, which means it acts as a coin that maintains a consistent price. Stable coins are usually tied to fiat currencies, and the USDT token is no exception. Tether’s USDT is pegged to USD, so its goal is for 1 USDT token to equal $1 USD.
So you may be asking what is Tether’s purpose?
Tether is great for on-boarding users into the world of crypto. It’s an easy bridge from fiat to cryptocurrency. Since many exchanges don’t let you buy any cryptocurrency directly with fiat, the USDT token is bought with fiat, and can then be used to buy other cryptocurrencies. Not all cryptos can be exchanged for each other. For most you currently have to buy bitcoin or ethereum with fiat, and then exchange it for another token.
Their accessibility allows it to be an easy way out of the markets at the first signs of instability.
Not happy with the markets or see a rocky future ahead? Tether allows you to mitigate your risk by effectively taking your money out of the market.
The fiat backing the USDT token
I stated earlier that Tether’s goal is to have 1 USDT = 1 USD. So they should have $1 backing each token, but there have been accusations that this might not be the case.
Fears have been raised that Tether Limited, the organization behind Tether, doesn’t actually hold enough U.S. dollars to back all the digital coins in circulation. The accusations state that the foundation has essentially printed currency out of thin air, which is behavior usually reserved for fiat currencies… If too many people end up buying cryptocurrencies with the unbacked USDT token, well those prices may plummet, as if the foundation of a building simply disappeared.
Others have dismissed these accusations as FUD, but it’s hard to know who is right in this situation. For legal and practical reasons, Tether Limited may never voluntarily conduct an audit. And based off of the countries they are incorporated in, they likely will never be compelled to do an audit. So either Tether is a legitimate practical tool, or a house of cards in the path of a tornado.
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