Tether (USDT): A fiat collateralized stablecoin which value is backed by the US dollar issued by Tether Limited.

Is USDT, the first stablecoin pegged to the US dollar, a stable digital asset or a controversial altcoin?

A stablecoin is a type of cryptocurrency which value is pegged to another asset, like fiat money, another cryptocurrency or commodity. Stablecoins were created to overcome the issue of price volatility in trading decentralized assets. Tether (USDT) is the first and the best known stable coin amount others – trueUSD (TUSD), gemini dollar (GUSD), and USD coin by Circle and Coinbase (USDC).

Tether’s white paper came out in January 2012 with the Mastercoin initiative (later Omni). The first tokens were issued on Bitcoin blockchain in 2014 and originally named Realcoin. Bitfinex listed the coin on the exchange a year later.

The initial idea in USDT design was to maintain the token’s value of $1 by reserving $1 for every token issued. Nevertheless, the lawyer of Tether Limited revealed in 2019 that each Tether was backed by only $0.74 in cash and cash equivalents. In 2019, Tether surpassed Bitcoin in trading volume with the highest daily and monthly trading volume of any cryptocurrency on the market.

Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of Tether and associated trading at the Bitfinex exchange account for about half of the price increase in Bitcoin in late 2017.

A lot argue that the existence of stablecoins contradicts the main idea of cryptocurrency as decentralized technology not governed by a central institution. Tether is sometimes compared to and called the Central bank of crypto. Questions about the relationship between Bitfinex and Tether were raised by blockchain critics. Bitfinex was accused of creating “magic Tethers out of thin air”, after which Tether published a memorandum to prove the token was fully backed by the US dollar. However, later on, the company failed to undergo an external audit. Tether announced that they no longer had a relationship with their auditor in 2018.

Tether is the best-known stablecoin with the current market cap of more than $4 billion. But its simple promise that every unit is “100% backed” by United States dollars has been brought into question many times in recent years. The traditional finance call it too shady, while the crypto maximalists see it to be too “traditional”. Regulators simply don’t know what to do with them yet.