What is the use of the stablecoin Tether (USDT)?
Tether (USDT) is a digital currency created to be equivalent to the US dollar. The idea behind Tether, which was launched in 2014, was to create a stable cryptocurrency that could be used as a digital dollar or stablecoin. The price of Tether depends on the price of the US dollar.
Tether was originally called Omni on the Bitcoin network. Despite using the layer protocol, it can now be found as an ERC20 token on Ethereum. It is marketed on the Tether, Bitcoin (via Omni and Liquid Protocol), Ethereum, EOS, and Tron blockchain networks.
Binding Tokens are issued by Tether Limited, a joint CEO with cryptocurrency exchange Bitfinex. Tether has said in the past that the Tether currency was backed by 100 percent of its reserves. However, Tether’s lawyers noted that only 74% of Tether in 2019 consisted of secured reserves, and Tether explained that the definition of ‘fully secured’ includes loans to partner institutions.
Tether is used as a hedge against fluctuations in the cryptocurrency market due to its constant value. Since each USDT coin equals one dollar, holding the coin in Tether protects it from the familiar fluctuations of the cryptocurrency market. That’s why the vast majority of Bitcoin trading takes place over Tether. Because Tether can be used for a two-way transition between standard currencies such as the dollar and euro and the crypto economy.
Volume is melting in Tether
Following the collapse of Terra, another stable coin, the DEI ” stable coin” , also lost the $1 level. Tether, the most popular stable coin in the crypto money market, attracted attention to the loss of volume.
Launched to protect buyers from price fluctuations, stablecoins were seen as a ” safe haven” of the cryptocurrency market. However, the sharp declines in the crypto money market in the recent period have caused investors to lose confidence and move away from the market. Fixed currencies have also suffered from this loss of value and confidence. Last week’s fluctuation of TerraUSD between 30 cents and 90 cents caused various speculations.
Investors converted $7.7 billion worth of Tether (USDT) into cash, causing the stablecoin’s market capitalization to fall 7.8% over the past seven days to $76 billion.
The amount withdrawn from the StableCoin is almost double the $4.1 billion held in cash reserves at the end of 2021.
The company behind Tether backs the stablecoin with assets such as cash, bonds and treasury bills to maintain its index against the dollar. Each USDT must be backed by at least $1 USD worth of assets.
According to the company’s latest reserve report, the total value of assets in its treasury is at least $78.6 billion. Of this, about $4 billion, or 5%, is the cash portion.
On the other hand, after the collapse of the algorithmic stablecoin unit TerraUSD (UST), it seems to have managed to maintain its cash reserves despite the fact that investors flocked to withdraw their money. After the events of the past week, investors began to withdraw their money not only from stablecoins, but from the cryptocurrency market in general, fearing collapses.
The transparency report, which is updated daily, shows that 6.36% of Tether assets are currently held in cash. If Tether’s reserves approach USDT’s market capitalization, this is equivalent to around $4.8 billion.
The panic that took over the market on Thursday caused USDT/USD to drag below $0.99 on major exchanges. Tether issued a statement on the same day. Its CTO, Paolo Ardoino, noted that most of the company’s reserves are held in government bonds, and the portion allocated to bonds is decreasing.
Tether has faced criticism for keeping the assets in its reserves secret, and first revealed details of the reserve in May 2021.