Tethers in Cryptocurrency: Everything you should know!

What are Tethers?

Tethers (commonly abbreviated as USDT) are a cryptocurrency that runs on the Ethereum blockchain and is backed by tokens issued by Tether Limited, which is controlled by Bitfinex's owners. Tethers are referred to as stablecoins because they were designed to always be worth $1.00, with $1.00 in reserves for each tether released. According to Tether Limited, owners of tethers have no contractual right, legal claim, or assurance that their tethers will or may be redeemed or exchanged for dollars.

Tethers are a blockchain-based cryptocurrency that aims to keep cryptocurrency values constant. It is used by cryptocurrency investors who want to avoid the significant volatility of other cryptocurrencies while still retaining market value. The native currencies of the tethered network used are theta tokens, which were produced by the crypto exchange Bitfenix and trade under the USDT sign. With a market valuation of almost 68 billion dollars as of October 2021, theta tokens are the fifth-largest cryptocurrency by market capitalization.

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Tethers make it simple for businesses to employ fiat-backed currencies on blockchains, including exchanges, wallets, payment processors, financial services, and ATMs. Tether is a cryptocurrency that leverages Blockchain technology to allow you to send and receive digital tokens worldwide, instantaneously, and securely at a fraction of the cost of other solutions.

 

Is Tether a Stablecoin?

Tether is utilized as a medium of exchange and a form of value storage because it is a stable cryptocurrency whose value does not fluctuate much. Because the stable coin industry strives to eliminate volatility, allowing bitcoin to function as a safe haven rather than a dangerous investment in a volatile cryptocurrency market where it would be impossible to convert between cash and a cryptocurrency like bitcoin, stable coins provide liquidity, making tether the first and most well-known stable coin in the world.
Other stable coins, on the other hand, are supported by fiat currencies such as the euro or yen, while some others are supported by precious metals such as gold and silver.
Stablecoins are named for the fact that they are linked to a stable amount of another asset, such as a dollar. Coins like Tether, which claim to be fully backed by liquid assets like cash or bank-held secure bonds, fall into this category.

 

Why are Tethers so contentious?

Tether was originally introduced as a physical coin in 2014, with the first tokens emerging on the bitcoin network in 2015. It was one of the first and most successful stable coins, as well as one of the first cryptocurrencies. However, it was confronted with skepticism and controversy almost as quickly as it acquired popularity, which is understandable considering how closely the coin was investigated, especially because the first popular stable coin, tether, was a driving force behind bitcoin's bull run up to $20,000 in 2017.

Tether is looking to be introduced into the bitcoin market artificially to offer liquidity. New York Attorney General Lithia James has prosecuted Tether's parent company for withholding information. In 2019, Tether's currency reserve was depleted, resulting in a loss of 850 million dollars. Tether and James have agreed to pay $85 million and stop doing business with New Yorkers by 2021.

 

How does Tether work?

Tether has a finite supply of tether tokens and accepts treasury deposits and withdrawals. Tether on bitcoin was established on the Omni layer, a bitcoin blockchain-based system in which a ledger is held on the bitcoin blockchain, as well as liquid, a bitcoin sidechain, and transactions, which may be observed by the Omni explorer.

Tethers in Cryptocurrency: Everything you should know!
Fig: Tether's Stack of Technology

Tether is also available on other blockchains, such as Ethereum, allowing new assets to be produced directly on these platforms. The most important market for USDT is there. On the chain on which it was established, a tether (a single unit of USDT) may be used like any other money or token. Tether is currently supported on the Bitcoin, Ethereum, EOS, Tron, Algorand, and OMG Network blockchains.

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Is Tether Safe?

While Tethers have been dogged by controversy, TrueUSD offers itself as a more secure option. TrueUSD works on the Ethereum blockchain, whereas Tether was launched on the Omni Layer. Users' fiat is stored in an escrow account, which they can access and reclaim at any moment, according to the company's official release at the time.

Several exchanges used Tether substantially before it became embroiled in its recent series of issues with US federal regulators. Many people began to consider a different choice after fearing a stable coin crackdown.

According to a CoinDesk story, Digifinex replaced the popular USDT with its primary challenger, TrueUSD, in September, following a slew of recent problems surrounding Tether. Tether stated it had cash reserves equivalent to the value of the stable coins it created to reassure buyers that it was trustworthy. The US authorities discovered that this was not the case. According to the CFTC, Tether held 27.6% of the value of issued stable coins in fiat currency reserves between 2016 and 2018. Tether was charged with making "untrue or misleading statements and omissions of significant information," which the Commission settled.

 

Conclusion

Many would have predicted that Tethers would not make it through the fourth quarter of the year, but they have. Regardless, it is a sitting duck for US officials if they decide to act on alleged money laundering instances. This is an accusation that can be brought against any financial institution, regardless of their level of guilt. Tether's reliance on a formal banking arrangement is a mystery that, if investigated further, will open up a can of worms. Overall, the overwhelming hazards far outweigh any strength that has made it popular since its inception.

Whether you like it or not, USDT is an important part of the cryptocurrency economy. The nodes with the highest centrality are all exchanges, supporting the hypothesis that Tether is used solely for financial and speculative purposes. However, this is not enough to create an effect of assortativity that binds these nodes together, owing to the temporal transience of their role, which prevents the development of long-term relationships, as exchanges that are particularly active during a period of heavy Tether traffic may be replaced at any time.

 

Further Reading

Top Blockchain platforms
Cryptocurrency
Tethers Wikipedia

 

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