A Little Into The Tether US Dollar
Written by Godwin Okwong
Overview
Tether USD (USDT), formerly known as “Realcoin,” was established in July 2014 by Brock Pierce, Craig Sellars, and Reeve Collins in Hong Kong. It is a cryptocurrency that attempts to maintain a fixed 1:1 exchange ratio with the US dollar.
USDT is a form of cryptocurrency that ties its price to the US Dollar in order to maintain a constant value, with each USDT serving as a substitute for one US dollar.
In an effort to address two key problems plaguing cryptocurrencies at the time, Tether was developed to curb excessive volatility and convertibility between fiat currencies and cryptocurrencies. To solve these alleged problems, Tether developed a cryptocurrency that is completely backed by bank deposits of US dollars.
While USDT tokens are represented as ERC-20 tokens on Ethereum, Tether uses the Omni layer to represent USDT tokens on Bitcoin. Although the network of the tokens is decentralized, the Hong Kong-based business is entirely in charge of issuing and redeeming tokens as well as upholding the 1:1 deposit backing.
Using the Omni Layer protocol, which permits the issue and transfer of tokens on top of the Bitcoin network, Tether initially functioned only on the Bitcoin blockchain. Tether, however, began to extend to other blockchains in 2017 because of scalability issues and rising transaction prices on the Bitcoin network, including Ethereum and Tron.
The major users of Tether USD as an alternative to fiat currencies have been exchanges, which minimizes or completely eliminates the need to maintain external banking links. Bitfinex, Bittrex, Binance, Coinbase, Kraken, Huobi, Poloniex, Liquid.io, Gate.io, and OKEx are a few notable exchanges that support the coin. Tether Ltd. and Bitfinex, both of which are domiciled in Hong Kong, share the same parent company, iFinex Inc., as well as several executives and close relationships.
Tether’s claim to be backed by reserves of actual assets kept in reserve bank accounts, is one of its primary characteristics. Each USDT token is said to be backed by one dollar that is kept in reserve for redemption on demand, according to Tether Limited. As USDT is backed by a real asset, this is designed to instill some stability and trust in its worth.
Tether, however, has come under fire and criticism for its openness and reserves. Tether Limited has been accused of hiding information regarding the amount of reserves it possesses, which has occasionally raised worries about whether Tether has enough assets to support the USDT tokens that are currently in circulation. However, these secrets were disclosed later, in November 2018, to allay concerns expressed by Bitfinex over their solvency.
Particularly, there have been doubts regarding Tether’s durability and possible effects on the larger cryptocurrency market because of worries that it may not have sufficient U.S. dollars in reserves to adequately back the significant number of USDT tokens that have been released.
Tether has maintained its position as one of the most popular stablecoins in the cryptocurrency ecosystem despite these problems, with a sizable trading volume and market valuation. Many cryptocurrency exchanges make use of it to provide liquidity and make trading between various cryptocurrencies and fiat currencies easier.
Regulator monitoring and worries over its reserves, however, are still hotly contested issues in the Blockchain industry, as Tether amended its disclosure statement in March 2019 and said that its tokens are no longer fully guaranteed by deposits in U.S. dollars. Instead, Tether is now fully backed by reserves, which include conventional currency, cash equivalents, as well as occasionally other assets and receivables from loans made by Tether to third parties, including perhaps related organizations.
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