What is Tether?
Tether is a form of blockchain-based digital currency that is backed by and tied to traditional, government-issued currencies such as the US dollar, euro, or Japanese yen. For every Tether coin in circulation, there is an equivalent amount of fiat currency held in a designated bank account. Tether tokens, denoted by the symbol USDT, are the native tokens of the Tether network.
Tether falls under the category of stablecoins, which are cryptocurrencies designed to have a stable value, unlike more volatile options like Bitcoin and Ethereum. This stability allows for Tether to be used as a reliable medium of exchange and store of value, rather than solely for speculative investments. Specifically, Tether is classified as a fiat-collateralized stablecoin, as it is backed by fiat currencies.
Other types of stablecoins include crypto-collateralized, which are backed by cryptocurrency reserves, and non-collateralized, which operate similarly to a reserve bank in maintaining the token supply. Tether was created with the intention of bridging the gap between traditional fiat currencies and cryptocurrencies. It offers users stability, transparency, and low transaction fees.
Tether is pegged to the US dollar and maintains a 1-to-1 ratio in terms of value. However, unlike traditional currencies, there is no guarantee for redemption or exchange of Tether for real money. According to a study by CryptoCompare, Tether is still heavily traded for Bitcoin, representing 57% of all bitcoin trades into fiat or other stablecoins as of February 2021.
As such, Tether remains a significant source of liquidity in the cryptocurrency market. The digital currency was initially launched as RealCoin in July 2014 and was later rebranded as Tether in November by Tether Ltd., the company responsible for managing the reserve of fiat currency. Tether began trading in February 2015.
