The world of cryptocurrency can be a confusing one. Altcoin, stablecoin, ICO, whale – there’s a lot of crypto-specific terminology online, and all too often, it’s taken for granted that the reader already understands what it means. (If you’re wondering, a ‘whale’ is someone who owns vast reserves of cryptocurrency, like the so-called King of Crypto Barry Silbert).
You may have come across the term ‘USDT’ online or when browsing cryptocurrency publications. If you’ve ever wondered what this means and how it fits into the wider world of crypto, read on. In this article, we’ll be breaking down what the initialism USDT actually means and explaining the relationship that Tether/USD and other cryptocurrencies have with fiat money.
What does USDT stand for?
The abbreviation USDT stands for ‘US Dollars Tether’. It’s the currency code that’s used to show that a payment has been made in Tether – a stablecoin that launched in 2014.
Like USD, GBP, or EUR, USDT is simply a universally accepted form of financial unit. It’s the written way of denoting Tether and an alternative to its symbol, ₮, which can be difficult to write online as standard keyboards won’t support it.
Let’s take a close look at Tether and explore why its currency code includes a reference to the US dollar.
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What exactly is Tether USDT?
Tether is an altcoin that was originally launched as a more stable alternative to Bitcoin and other more ‘conventional’ cryptocurrencies. A stablecoin is a type of cryptocurrency which is designed to bridge the gap between crypto and fiat money. (Fiat money is any currency which is issued as physical cash. It has no intrinsic value but maintains a roughly set price as a result of regulations and government monitoring. Examples of fiat money include the dollar, the pound, the yen, or the euro).
This works because the value of each stablecoin is tied to a fiat currency. In the case of Tether, this is the US dollar – hence the letters USD in its currency code. When Tether first entered circulation, its founders (a spin-off team from the crypto exchange platform Bitfinex, although they denied this for years) stated that one Tether was equal in value to one USD. In theory, this value was never increase or decrease to more than one cent over (or below) $1.
Additionally, Tether Holdings Limited – the Hong Kong-based company which launched the altcoin – claimed that for every Tether token that was issued, there would be a reserve of $1. This would theoretically help to secure the stability of Tether and sidestep the volatility issues which can cause cryptocurrencies to fluctuate in value.
So, is Tether USDT actually backed by the USD?
Over the last six years, Tether has had a controversial reputation. From concerns that the currency was being used to manipulate the exchange price of Bitcoin, to scandals surrounding its connection with Bitfinex and worries that Tether Holdings Limited doesn’t actually have the cash reserves it claimed, the altcoin is no stranger to scrutiny.
One of the factors for which Tether has most recently come under fire is its true value in relation to the dollar. According to one of Tether Holdings Limited’s lawyers, each Tether token is only 0.74% backed by ‘cash and cash equivalents’. The news broke in April 2019, when the company admitted its cash reserves totalled just $2.1 billion in cash and short-term securities.
It might sound like a lot of money, but by that point, a total of roughly 4 billion Tether had been issued. This means that the company couldn’t possibly back its supply – a fact which challenged its status as a so-called stablecoin.
How popular is Tether USDT?
Despite its many controversies, Tether USDT is still one of the most widely used cryptocurrencies around the world. With a current market capitalisation of just under $10 billion, it’s clear that its numerous set-backs haven’t greatly harmed its reputation with the majority of crypto traders.
Tether’s market cap was just $4.1 billion at the start of 2020 – a staggering increase of almost $6 billion in roughly as many months. One of the reasons for this popularity could be that many traders see stablecoins as an alternative to fiat currency. While converting cryptocurrency to fiat has a whole host of regulatory issues, it’s relatively straightforward to exchange stablecoin tokens.
Whether or not Tether is truly ‘stable’ is still up for debate, with both traders, regulators, and crypto experts falling on both sides of the argument. But one thing is for sure: Tether’s apparent resilience in the face of regular scandal has certainly proved its staying power.
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