Tether (USDT): Meaning and Uses for Tethering Crypto

What Is Tether (USDT)?

USDT is the symbol for Tether, a cryptocurrency that is pegged to the U.S. dollar. This means USDT is a stablecoin, fluctuating in value with the U.S. dollar and backed by Tether's dollar reserves. USDT is issued by Tether, a company owned by iFinex, the Hong Kong-registered company that also owns the crypto exchange BitFinex.

As of March 2024, USDT was the third-largest cryptocurrency after Bitcoin (BTC) and Ethereum (ETH) and the largest stablecoin, with a market capitalization of nearly $99 billion. In 2023 and early 2024, Tether's USDT accounted for most of the exchanges out of other cryptocurrencies by volume.

Understanding Tether (USDT)

USDT, or Tether, belongs to a fast-growing type of cryptocurrency called stablecoins which avoid the extreme volatility of untethered cryptocurrencies, most commonly by tying their values to the price of a traditional currency like the U.S. dollar.

Tether was launched as RealCoin in July 2014 and was rebranded as Tether (USDT) in November 2014. Originally based on the Bitcoin blockchain, Tether now supports Bitcoin's Omni and Liquid protocols as well as the Ethereum, Avalanche, Kava, Polka, TRON, EOS, Algorand, and Solana blockchains.

Tether also issues tokens pegged to the euro, the offshore Chinese yuan, the Mexican peso, and gold, none with more than a fraction of the market cap of its U.S. dollar-pegged USDT tokens.

How a Currency is Pegged

A pegged currency is often backed by reserves made up entirely or mostly of the pegged currency. A number of fiat currencies are pegged to the U.S. dollar, including those of Panama and Saudi Arabia. This protects the currencies from extreme fluctuations in value, as their trading values move with the USD.

The same price stability underlies pegged cryptocurrency.

Tether's Transparency

Tether updates a breakdown of its reserves holdings daily on its website. As of March 3, 2024, it reported assets of $99.45 billion for USDT. The company reported holding 84.58% of its reserves in cash, cash equivalents, short-term deposits, and commercial paper; 76.87% of this was in U.S. Treasury bills.

It also held 0.05% of its reserves in corporate bonds, 3.62% in precious metals, 2.91% in bitcoin, 4.95% in secured loans to unaffiliated entities, and 3.89% in other investments.

Stabilization

A stable value promotes using stablecoins as a medium of exchange like conventional money.

In practical terms, stablecoins have made it easier to speculate in cryptocurrency markets. Their rapid growth in popularity is also the result of stablecoins' use as collateral by decentralized finance (deFi) lending and staking protocols.

Tether History

In November 2017, Tether reported the electronic theft of $31 million in USDT tokens. The company implemented a hard fork, a security technique that involves splitting a blockchain into two streams.

By then, the company was already dealing with questions about the adequacy of its reserves and, as subsequent investigations would show, having trouble accessing banking services.

2019

In April 2019, New York Attorney General Letitia James obtained a court order enjoining Tether and BitFinex parent iFinex from further violations of New York law. It had been determined that BitFinex had borrowed at least $700 million from Tether's reserves to offset BitFinex corporate and client funds frozen (and ultimately seized) from its Panamanian banking partner Crypto Capital Corp. in a money-laundering probe.

2021

In February 2021, Tether and BitFinex settled the case by agreeing to pay a fine of $18.5 million, discontinue trading with any New York state residents or entities, and furnish information about its reserves to the New York Attorney General's office for the next two years.

In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) announced that Tether agreed to pay a $41 million fine "over claims that Tether stablecoin was fully backed by U.S. dollars." In fact, "Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," according to CFTC. Bitfinex agreed to pay a $1.5 million fine to settle separate CFTC allegations as part of the settlement.

2022

In May 2022, Tether's price briefly fell to as little as $0.96 following the TerraUSD (UST) peg loss, even though it wasn't an issuer affiliated with Tether or BitFinex. The price of Tether tokens quickly rebounded to more than $0.99, and Tether said it was continuing to honor redemption requests at a 1-to-1 ratio to the U.S. dollar.

Tether also launched MXNT, a stablecoin backed by the Mexican peso following earlier expansions into Europe (EURT) and China (CNHT).

2023

In 2023, Tether expanded into artificial intelligence by acquiring Northern Data Group. It appointed a new CEO—Paolo Ardoino, its former chief technology officer and a staunch cryptocurrency and blockchain financial solutions advocate.

The same year, a lengthy lawsuit against Tether and Bitfinex was finally concluded following Judge Laura Swain's dismissal of the claims in November 2023.

The company also continued participating in several measures to enhance cryptocurrency security, educate users and legislators, and cooperate with law enforcement agencies.

The Bottom Line

Tether is a cryptocurrency that attempts to maintain a value peg to an underlying currency such as the dollar or euro. It does this by keeping enough actual currency or equivalents in reserves that the cryptocurrency holds the same value as the fiat currency.

Tether is primarily used to convert cryptocurrencies to fiat to prevent slippage, or a decrease in value between transaction initiation and execution. However, there are times when it isn't exactly pegged to the fiat currency it is supposed to be tracking. For instance, when the exchange FTX collapsed in November 2022, Tether plummeted to nearly $0.995 but rebounded quickly, at times seeing more than a 1-to-1 peg.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.