Tether (USDT) is a cryptocurrency token issued by Tether Limited, owned by BitFinex. USDT can be, and have been, issued on multiple blockchain platforms, including: Ethereum, Binance Smart Chain, Tron, Bitcoin via Omni, Solana, and more. Tether Limited asserts that each USDT in circulation is backed by at least 1 USD in assets in Tether Limited’s reserves. Users can create and redeem USDT for USD by registering with Tether.to.
USDT is one of many “stablecoins” in the cryptocurrency ecosystem. A “stablecoin” simply refers to any cryptocurrency token that is intended to follow another asset in value. USDT in specific attempts to follow the USD in value, and typically trades near 1 USD. By having a blockchain-native dollar-pegged asset, users are able to switch between holding volatile cryptocurrencies, and less volatile currencies, while still retaining their ability to transact across blockchains in the cryptocurrency ecosystem.
What are the risks associated with holding USDT?
While Tether Limited asserts that each USDT is fully backed by reserves, it is important to note that holding USDT can still expose users to several risks that can result in complete loss of funds. These risks include, but are not limited to:
- USDT trades on many exchanges and markets, and may not trade for exactly 1 USD at any given time period. In an extreme scenario, if confidence in USDT is lost, it could trade as low as 0 USD.
- Since USDT exists on multiple blockchains, users must be sure not to send tokens to an incompatible network; for example, sending USDT from Rain to a Binance Smart Chain address could result in permanent loss of funds
- Tether Limited is a corporation based in Hong Kong with offices in Switzerland; by holding USDT, you are also exposed to the risk of Tether Limited being able to manage and operate their USD reserves
- Tether Limited provided a transparency report as of June, 2021 detailing the composition of their USD reserves, of which 85% composed of commercial paper, certificates of deposits, and treasury bills: https://tether.to/wp-content/uploads/2021/08/tether_assuranceconsolidated_reserves_report_2021-06-30.pdf