Tether (USDT) is a cryptocurrency token issued by Tether Limited, a company owned by BitFinex. It can be issued on various blockchain platforms, including Ethereum, Binance Smart Chain, Tron, Bitcoin via Omni, Solana, and more. Tether Limited asserts that every USDT in circulation is backed by at least 1 USD in assets held in their reserves. Users can create or redeem USDT for USD by registering with Tether’s platform, Tether.to.
USDT is one of several “stablecoins” in the cryptocurrency ecosystem. A stablecoin is a cryptocurrency token designed to maintain a stable value by being pegged to another asset, such as a fiat currency. USDT aims to maintain parity with the USD, typically trading close to 1 USD. This stability allows users to move between volatile cryptocurrencies and less volatile assets while retaining the ability to transact across blockchain networks.
What are the risks associated with holding USDT?
Holding USDT involves certain risks, including:
Price fluctuations:
USDT is designed to maintain a 1:1 value with the USD but may not always trade at exactly 1 USD. In certain situations, such as a loss of confidence in the token, its value may fluctuate significantly.Compatibility issues:
USDT exists on multiple blockchain networks, and users must ensure tokens are sent to a compatible address. For instance, sending USDT from a Rain account to an incompatible blockchain, such as Binance Smart Chain, could result in permanent loss of funds.Operational risks:
Tether Limited, the issuer of USDT, is responsible for managing the reserves backing the token. These reserves include assets such as commercial paper, certificates of deposit, and treasury bills. A transparency report from June 2021 indicated that 85% of the reserves were held in these asset types. Tether Limited is based in Hong Kong with offices in Switzerland, and its operations may carry risks related to reserve management.