Tether (USDT): Features, Advantages, and Risks of the Most Popular Stablecoin

USDT (Tether) has become one of the cryptocurrency market's most well-known and discussed stablecoins. It plays a key role by offering a stable value, making it a popular tool for trading and storing value in the volatile world of cryptocurrencies. The differences between USDT, Bitcoin, and other stablecoins, such as USDC, are of significant interest to market participants.

USDT remains a popular instrument in the crypto market due to its stability. However, its distinction from Bitcoin and other aspects, such as transparency issues and regulatory risks, make it a constant topic of discussion. Compared to USDC, DAI, and BUSD, Tether maintains its leadership in terms of volume, though competitors offer alternative solutions with greater transparency and decentralization.

What Are Stablecoins?

Stablecoins are a type of cryptocurrency pegged to the value of a traditional asset, most often a fiat currency like the US dollar. Their primary purpose is to minimize volatility, which affects popular cryptocurrencies like Bitcoin and Ethereum.

The most popular stablecoins are USDT (Tether), USDC (USD Coin), and DAI. They offer convenience for everyday transactions and trading because they maintain their value and are easily exchangeable for other cryptocurrencies or fiat currencies. The choice of stablecoin depends on the user's needs: some prioritize liquidity and convenience, while others value decentralization and transparency.

The Brief History

USDT was launched in 2014 by Tether Limited to create a digital equivalent of the US dollar. The project was initially called Realcoin but was soon rebranded. The main idea was to create a cryptocurrency that combined the advantages of blockchain technology (accessibility, security, speed) with the stability of traditional currencies.

The new currency was initially launched on the Bitcoin blockchain using the Omni Layer protocol, which allowed each token to be tied to an equivalent amount of dollars in the company’s reserve accounts. Tether eventually began issuing USDT on other blockchains, such as Ethereum, Tron, and Solana, to expand functionality and integration with other ecosystems.

However, questions still need to be answered about the actual backing of USDT tokens with US dollars in the company's accounts. This has led to repeated criticism of Tether in the media, as the company does not publicly report on its assets. Despite these issues, Tether still hloding a leading position in the stablecoin market.

Differences Between USDT and BTC

Purpose

Bitcoin (BTC) was created as a decentralized digital currency aimed to replace traditional fiat money and bring users control over their finances without intermediaries. Unlike Bitcoin, the primary goal of USDT is to ensure stable value. Its peg to the US dollar makes it a reliable means of storing and transferring funds in volatile conditions.

Working Mechanism

BTC operates on a fully decentralized network with each transaction verified by miners, and new coins are issued through mining. Bitcoin has a supply limit of 21 million coins, which restricts its issuance. USDT, on the other hand, is centralized and fully controlled by Tether Limited. The company can issue or redeem tokens at any time, depending on the availability of corresponding reserves.

Transparency

Bitcoin's open-source code and public blockchain make it transparent and accessible to all network participants. Meanwhile, despite Tether Limited’s efforts to increase transparency, recent questions about full reserve backing and the lack of regular audits raise doubts among some market participants.

Liquidity

BTC is used as a store of value, investment, and payment method. Its high volatility attracts traders but makes it less convenient for everyday transactions. USDT is a key tool for trading on cryptocurrency exchanges, especially when transitioning between fiat and cryptocurrencies, allowing traders to minimize volatility risks.

Comparing with Other Stablecoins

USDC (USD Coin)

USDC was created in 2018 by a joint venture between Circle and Coinbase. The currency is managed under strict regulatory standards with regular audits. All reserves backing USDC are held in verifiable and controlled banks. Tether claims USDT is fully backed by its reserves. However, due to insufficient transparency around this issue, much debate continues. Additionally, USDC works closely with regulators and is positioned as a safer and more legitimate option among stablecoins.

Other Stablecoins

DAI: A decentralized stablecoin issued by the MakerDAO platform. Its key difference from USDT and USDC is the lack of a central issuer, with backing through collateralized assets on the Ethereum blockchain. DAI is considered more resistant to regulatory pressure due to its decentralization.

BUSD (Binance USD): A stablecoin from Binance, issued in partnership with Paxos. Like USDC, BUSD is regulated and audited, which increases trust in the token on the market.

USDT: Pros and Cons

Pros:

- Stability: Pegging to a fiat currency minimizes volatility risks, making stablecoins convenient for storage and daily use.

- Liquidity: Stablecoins are widely used on exchanges, ensuring high liquidity.

- Speed and Convenience: Transfers using stablecoins are much faster and cheaper than traditional banking systems.

Cons:

- Centralization: Many stablecoins, including USDT, are centralized, making them vulnerable to risks from their issuers.

- Regulatory Risks: In the event of tighter regulations or legal actions, issuers may face problems that affect the value and availability of stablecoins.