Tether wallet

Tether has historically, and continues, to dominate the broader cryptocurrency stablecoin market concerning overall market cap and general usage. Tether Limited issues Tethers (USDTs) and Tether was officially renamed ‘Tether’ from ‘Realcoin’ in November 2014 -- with Realcoin initially distributing the tokens on the Bitcoin blockchain using the Omni Layer Protocol.

The primary goal of Tether is to serve as a fiat alternative in the cryptocurrency markets, particularly exchanges, where skepticism by banks has led to endemic issues in many exchanges maintaining stable banking relationships to access fiat liquidity.

Despite numerous criticisms over the years, Tether has remained a pivotal source of market liquidity for cryptocurrencies as a stable price peg in a market rife with volatility.

Design and Backing

Tether is built using transport protocols on both Bitcoin and Ethereum. According to Tether:

“Since Tether is currently available using two different transport protocols (Bitcoin and Ethereum), when users send tethers to other addresses, they need to carefully check the destination address to confirm whether it is in the standard Bitcoin or Ethereum format and select the correct transport protocol.”

Up until March 2019, Tether was backed by 100 percent reserves of the equivalent fiat peg -- USD or EUR. However, Tether Limited’s lawyer recently claimed that Tethers are backed by 74 percent cash and cash equivalents while the remaining 26 percent is upheld by short-term securities.

Despite the revelations and several instances of speculation on Tether’s full reserves, Tether has maintained parity with its 1 USD price peg for the vast majority of its existence, even during times of turmoil.

At a high level, Tether is what is known as a ‘fiat-collateralized’ stablecoin where a central institution (i.e., Tether Limited) issues and burns the supply based on demand. For example, if Alice holds 100 USDT and wants to redeem them for 100 USD, Tether destroys the corresponding USDT stablecoins and issues 100 USD to Alice.

The model is very straightforward, and firms behind stablecoins generate revenue via the interest accrued from user deposits in their bank reserves that back the supply.

Tether provides a market anchor to fiat currencies, particularly the USD but also others such as the Euro. Because its holders can convert their USDTs for USD at a 1:1 ratio, Tether essentially functions as a much-needed substitute for the often missing fiat liquidity in the crypto markets.

Tether is widely available on almost all of the most popular -- and most liquid -- cryptocurrency exchanges in the world. Interestingly, professional arbitrage plays a critical role in Tether’s ability to scale while remaining stable -- a problem for other forms of stablecoins.

Its circulating supply is currently just under 2.9 billion USDT.

The Market for Stablecoins

Fiat-collateralized stablecoins like Tether have surged in popularity, with a flood of new stablecoins entering the market. The centralized design of Tether is seen as an important hedge against the volatility of crypto assets since the fiat collateral held in reserve will continue to retain its value should the crypto markets collapse.

There is a growing trend towards transparency in the stablecoin market, and Tether’s reserves are published daily to assure investors that the backing of Tethers is at least equivalent to or more than the circulating supply.

KYC process approval is also required to issue and redeem Tethers in USD or EUR.