Tether (USDT) is a prominent stablecoin issued by Tether Limited. As the most popular token from the company, Tether is commonly understood to refer to its U.S. dollar-pegged version, USDT.
The Origins of Tether
The concept behind Tether dates back to 2012 when programmer J.R. Willett introduced the idea of creating new cryptocurrencies on top of the Bitcoin blockchain. This vision materialized on July 31, 2013, with the launch of the Mastercoin token. The Mastercoin Foundation (later renamed the Omni Foundation) was established to promote the protocol, subsequently known as the Omni Layer Protocol. Among its founders were Bitcoin Foundation chairman Brock Pierce and CTO Craig Sellars.
In July 2014, Pierce, Sellars, and advertising industry entrepreneur Reeve Collins launched the startup Realcoin, based in Santa Monica, USA. On October 6 of that year, utilizing the Bitcoin blockchain and the Omni Layer protocol, the company introduced Realcoin tokens.
The founders emphasized transparency and security, stating that each Realcoin would be fully backed by one U.S. dollar, with reserves available for audit at any time. On November 20, 2014, CEO Reeve Collins announced a rebranding from Realcoin to Tether to avoid associations with alternative cryptocurrencies. The team clarified that Tether was not an altcoin or a separate blockchain but a tokenized representation of traditional currencies.
Shortly after, Hong Kong and Isle of Man-based Tether Limited began closed beta testing for three tokens: USTether (US+) for the U.S. dollar, EuroTether (EU+) for the euro, and YenTether (JP+) for the Japanese yen. The company also announced partnerships with the Hong Kong cryptocurrency exchange Bitfinex and several startups involving Brock Pierce.
In January 2015, Bitfinex listed Tether. Although both entities initially claimed no direct relationship, the 2017 Paradise Papers leak revealed that Bitfinex executives Philip Potter and Giancarlo Devasini had established Tether Holdings Limited in the British Virgin Islands. According to Tether's official website, Tether Limited is a subsidiary of Tether Holdings Limited.
How Tether Functions
Initially, USDT tokens were issued exclusively on the Bitcoin blockchain via the Omni Layer protocol. However, as of August 2023, Tether discontinued issuing new USDT on the Kusama, Bitcoin Cash SLP, and Omni Layer networks.
As of March 2024, new Tether stablecoins are issued across multiple blockchains, including Algorand, Avalanche, Ethereum, EOS, Liquid Network, Polygon, Tezos, Tron, Celo, and Solana. Beyond USDT, Tether also issues stablecoins pegged to offshore Chinese yuan (CNHT), Mexican peso (MXNT), and gold ounces (XAUT).
The operational cycle for Tether stablecoins involves the following steps:
- A user deposits fiat currency, traditional financial assets, or cryptocurrency into a Tether Limited bank or deposit account.
- The company mints Tether tokens at a 1:1 ratio (e.g., 1 USD = 1 USDT) and lends them to the user, releasing the tokens into circulation.
- The user conducts transactions with Tether, such as transfers or exchanges.
- When redeeming, the user deposits Tether tokens back to the company.
- Tether Limited destroys the tokens and returns the equivalent fiat currency to the user.
What Backs Tether (USDT)?
Although Tether stablecoins are pegged to traditional currencies, they are backed by a diverse reserve portfolio. This includes commercial paper, fiduciary deposits, cash, reverse repo notes, and Treasury bills.
In 2021, Tether began reducing its holdings of commercial paper. By the end of March 2021, these assets comprised 65% of its reserves. By the end of 2022, Tether had fully eliminated commercial paper from its reserves, replacing them with U.S. Treasury bills.
As of March 2024, Tether’s reserve structure includes:
- Cash and short-term bank deposits.
- Corporate bonds, precious metals, and Bitcoin.
- Loans to third-party companies.
- Other investments.
Notably, approximately 80% of Tether’s reserves consist of U.S. government bonds and securities placed in repurchase agreements. Current reserve details are available on Tether’s transparency page.
Tether’s Growth and Developments
In March 2024, Tether’s market capitalization surpassed $100 billion for the first time, nearly tripling the combined value of its closest competitors, DAI and USDC.
Beyond stablecoins, Tether is actively involved in global blockchain development. In March 2024, the company signed a memorandum with Uzbekistan’s National Agency for Prospective Projects to foster economic growth and innovation.
Tether has also shown interest in expanding its business into Russia, filing four trademark applications with the Russian Federal Service for Intellectual Property. Simultaneously, in 2023, the company spent $760,000 lobbying for stablecoin legislation in the United States.
Tether plans to invest $500 million in the first half of 2024. According to CTO Paolo Ardoino, the company is constructing mining farms in Uruguay, Paraguay, and El Salvador, each with a capacity of 40 to 70 megawatts. Tether also participated in the first funding round for Volcano Energy, a $1 billion Bitcoin mining project in El Salvador, and provided a €575 million credit line to German mining company Northern Data.
Additionally, Tether is investing in traditional internet infrastructure improvements. Ardoino announced five new projects for 2024 aimed at challenging centralized Web2 services.
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Frequently Asked Questions
What is Tether (USDT)?
Tether (USDT) is a stablecoin pegged to the U.S. dollar, designed to maintain a 1:1 value ratio with USD. It is widely used for trading, transfers, and as a hedge against cryptocurrency volatility.
How is Tether different from other stablecoins?
Unlike algorithmic stablecoins, Tether is primarily backed by real-world assets, including cash equivalents and government securities. Its multi-blockchain presence also offers greater flexibility and accessibility compared to many competitors.
Is Tether fully backed by U.S. dollars?
Tether’s reserves include a mix of cash, cash equivalents, and other highly liquid assets. While not solely comprised of U.S. dollars, the company maintains that its reserves fully cover all issued tokens, with regular audits and transparency reports available.
Which blockchains support Tether?
As of 2024, Tether operates on networks including Ethereum, Tron, Solana, Polygon, and others. This broad support allows users to transact USDT across multiple ecosystems efficiently.
Can Tether be redeemed for fiat currency?
Yes, eligible users can redeem Tether tokens for fiat currency through Tether Limited’s redemption process, which involves depositing tokens and receiving the equivalent fiat after the company destroys them.
What are the risks of using Tether?
Potential risks include regulatory changes, reserve transparency concerns, and dependence on the stability of the underlying assets. Users should stay informed about Tether’s reserve reports and regulatory developments.