USDT in simple terms
The USDT stablecoin is significantly different from other types of cryptocurrencies on the market. Let's see what these differences are.
Traditional cryptocurrency is digital money that has no material backing. In contrast, stablecoins are coins, each of which is backed by fiat money, shares, and other assets. This significantly expands the possibilities for the user. What is USDT in simple words?
What is a stablecoin
Tether from the point of view of technical implementation is a cryptocurrency that runs on the blockchain. But the USDT token does not have its own blockchain. That is, it functions on the platforms of bitcoin (through an additional layer), ether and some others.
The essence of a stablecoin is simple. Each issued coin corresponds to a dollar in the assets of the company that issues it (in this case, for example, Tether). USDT is backed by dollars, but this is not the only possible option. The company also offers tokens pegged to the euro, yen, and ounces of gold.
Now the USDT token is the most popular among all stablecoins. It accounts for about 61% of all operations that are carried out in the cryptocurrency sphere. USDC follows the leader, and BUSD closes the top three.
In simple words, USDT is an electronic dollar that is used in the digital world. It can be used to store capital, to pay for goods and services, and to conclude transactions. The main difference from crypto is exchange rate stability. There is no danger that after receiving the payment, the cryptocurrency exchange rate will fall sharply and the recipient will lose part of the money.
Thanks to these properties, the scope of stablecoin use is expanding significantly. It can be used as an additional way to store capital, to hedge the risks of high crypto volatility, and for other similar purposes.
Is a stablecoin really backed?
Tetther insists on the transparency of its activities for all market participants. Therefore, it constantly publishes data on the assets it owns, which act as USDT collateral. However, in 2018 and 2019 there were conflict situations related to distrust of the issuer. One of the regulators even filed a lawsuit to conduct an audit.
However, now there is no doubt about security. At the beginning of 2021, Deltec Bank confirmed the presence of financial assets. It is in this financial institution that the company stores dollars, securities and other valuables that the coins in circulation provide.
In addition, an independent review was carried out in March 2021. The consulting company Moore Global investigated the activities of Tether and concluded that the security does exist. The reserves that the company has formed are even greater than the number of tokens in circulation