Stablecoins are a special class of cryptocurrencies designed to counteract the volatility of the crypto market. One of the most popular and recognized stablecoins is USDT (Tether). In this article, we’ll learn more about this stablecoin and its main features.
History of USDT
Popularly known as Tether, USDT is not just any cryptocurrency; its purpose is to offer the stability of the US dollar with the efficiency and speed of blockchain technology. Its history dates back to 2014, when it was launched under the name “Realcoin” by Tether Limited. The project was born with a clear vision: to create a bridge between traditional finance and the emerging world of digital assets.
Shortly after, the project was renamed Tether and initially operated on the Bitcoin blockchain using the Omni protocol. Over the years, due to growing demand and the speed limitations of the Bitcoin network, Tether expanded to other, faster, and more economical blockchains, such as Ethereum (via ERC-20), Tron (TRC-20), Solana, and Binance Smart Chain.
Ideal Safe Haven to Avoid Devaluations
USDT has become a very special asset, as it is a stablecoin designed to maintain a stable value. In this case, each unit is backed by one US dollar or equivalent assets in reserves at a 1:1 ratio. This means that, unlike Bitcoin or Ethereum, whose value can fluctuate drastically in a matter of hours, USDT always seeks to maintain a value close to one US dollar, making it a “safe haven” within the crypto ecosystem and an ideal tool for making payments and transferring value without fear of cryptocurrency devaluation during the process.
Greater Market Liquidity
USDT is the stablecoin with the highest market capitalization and boasts the highest daily transaction volume globally. This means it is accepted on most exchanges and digital wallets and is in high demand at retailers, platforms, and businesses worldwide.
USDT liquidity refers to the ease with which an asset can be bought or sold without significant price fluctuations. A highly liquid market has a high trading volume and many buyers and sellers.
It’s important to note that USDT acts as a “bridge” between fiat currency (dollars) and cryptocurrencies. With greater liquidity, users can convert fiat currency to USDT and then to Bitcoin, Ethereum, or other altcoins without losing value due to high spreads (the difference between buy and sell prices).
Technological Versatility
Thanks to its presence across multiple blockchains, USDT users can choose the network that best suits their needs. For example, if speed and low fees are a priority, the Tron network (TRC-20) might be the most suitable. On the other hand, if greater decentralization and security are desired, the Ethereum (ERC-20) network may be the best option.
Main technical characteristics
USDT operates on a second layer of a blockchain, using the Omni Layer protocol, which allows it to benefit from the capabilities and properties of the blockchain’s tokens. This protocol can create or destroy non-transferable tokens (NFTs) represented as metadata on the blockchain. It is important to note that USDT tokens cannot be created and will only be created if the Tether ecosystem deems it necessary.
The USDT transaction ledger is public and has a transparency website; this helps the platform offer greater peace of mind to its users. Tether has created a system called Proof of Reserves that enables “Tether Equivalence” through “accounting cross-referencing” between the blockchain and its bank accounts. In this way, the system can ensure the 1:1 ratio is maintained, a fundamental characteristic of its platform.
Controversies
It’s worth noting that USDT is not without controversy, as throughout its history, Tether Limited has faced questions about the transparency of its reserves—specifically, whether it truly owns all the dollars backing the tokens in circulation. For example, in 2021, the CFTC fined the company $41 million for false statements about its reserves, while the New York Attorney General’s Office (NYAG) also fined the company $18.5 million for concealing a lack of reserves and using customer funds to cover losses at Bitfinex.
In response to these events, the company now publishes quarterly attestations (limited reviews by BDO Italia) and has significantly increased its holdings of US Treasury securities (more than 80% of its reserves) to build greater confidence and stability, in addition to having a transparency web portal.
It is important to note that despite these setbacks, USDT remains the most popular stablecoin globally, demonstrating the level of trust its users have worldwide.
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