DEFINITION of Tether (USDT)
Tether is a blockchain-based cryptocurrency whose cryptocoins in circulation are backed by an equivalent amount of traditional fiat currencies, like the dollar, the euro or the Japanese yen, which are held in a designated bank account. Tether tokens, the native tokens of the Tether network, trade under the USDT symbol.
BREAKING DOWN Tether (USDT)
Tether belongs to a new breed of cryptocurrencies called stablecoins that aims to keep cryptocurrency valuations stable, as opposed to the wide swings observed in the prices of other popular cryptocurrencies like Bitcoin and Ethereum. That would allow it to be used as a medium of exchange and a mode of storage of value, instead of being used as a medium of speculative investments. (See also, Is Stablecoin the Answer to All Cryptocurrency Problems?)
Tether specifically belongs to the category of fiat collateralized stablecoins, that is – a fiat currency like the US dollar, the euro or the yen, backs each cryptocoin in circulation. Other stablecoin categories include crypto-collateralized stablecoins, which use cryptocurrency reserves as collateral, or non-collateralized stablecoins, which don’t have any collateral but operate in a way similar to that of a reserve bank to maintain the necessary supply of tokens, depending on the economic situation.
Tether was specifically designed to build the necessary bridge between fiat currencies and cryptocurrencies and offer stability, transparency and minimal transaction charges to users. It is pegged against the US dollar and maintains a 1-to-1 ratio with the US dollar in terms of value. However, there is no guarantee provided by Tether Ltd. for any right of redemption or exchange of Tethers for real money – that is, Tethers cannot be exchanged for US dollars.
Tether was launched as RealCoin in July 2014 and was rebranded as Tether in November by Tether Limited, the company that is responsible for maintaining the reserve amounts of fiat currency. It started trading in February 2015. In November 2017, it was allegedly hacked with $31 million worth of Tether coins stolen, after which a hard fork was performed. In January 2018, it hit another hurdle as the necessary audit to ensure that the real world reserve is maintained never took place. Instead, it announced it was parting ways with the audit firm.