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what is tether coin

What is a Tether Coin? How Does It Work? Everything You Need To Know

Tether is one of the best stablecoins, but what is Tether coin? How does it work? Learn more about Tether in this short yet very informative guide.

Tether is a stablecoin that is pegged to the US dollar. It is issued by Tether Limited, a Hong Kong-based company founded in 2014 by Reeve Collins, Brock Pierce, and Craig Sellars. Tether Limited is responsible for issuing and burning the tokens to adjust the supply. 

How Does Tether Function?

Tether mimics the price of the U.S. dollar, and its primary goal is to become interchangeable for $1. This is why it maintains reserves in cash, cash equivalents, commercial paper, short-term deposits, corporate bonds, secured loans, and more. To make it simple, let’s say Tether wants to mint 1,000 USDT, it should have $1,000 in its reserves, allowing users to get their money back when they want. 

Stablecoins such as Tether act as a bridge between cryptocurrencies and the real world. And since they are pegged to a central bank-issued currency, they are less volatile. However, Tether issues stablecoins that are pegged to gold (AUXT), the common currency of the EU (AURT), the Mexican Peso (MXNT), and the Chinese yuan (CNHT). 

Note: USDT is neither decentralized nor mined. Tether Limited is responsible for issuing as well as burning the tokens. 

What Makes Tether So Special?

What is Tether Coin’s most unique feature? It guarantees that its value will stay pegged to the US dollar. When Tether issues a new token, it adds the same value to its reserves, making sure that USDT is totally supported by cash and cash equivalents. 

Also, the crypto market is infamous for being highly volatile, where cryptocurrencies can lose 10 percent to 20 percent of their value in a single day, making them unreliable stores of value. USDT, however, is safe from these fluctuations. This also makes USDT a very attractive investment for crypto investors during periods of high volatility. Lastly, it offers an easy way to send US dollar equivalents across borders through blockchain technology without relying on an expensive and slow intermediary such as a bank. 

What Backs USDT’s Value? 

Tether must deposit one US dollar into its reserves in order to mint one USDT. Tether’s reserves include the following:

  • Cash, cash equivalents, commercial paper, and short-term deposits: 83.74 percent 
  • Corporate bonds: 4.61 percent
  • Secured loans to unaffiliated entities: 5.27 percent
  • Other investments including digital tokens: 6.38 percent 

Note: Tether keeps its breakdown up-to-date on its website

Even with all the reserves, one question still remains, how does Tether stay at $1? Tether has dropped below $1 on several occasions, but it always rose back up and went above $1 as well. If investors believe that the company’s reserves are full of liquid collateral assets, USDT can continue to redeem its $1 value. 

How to Buy and Hold USDT?

What is Tether buying process? USDT is available on the majority of crypto exchanges and investors and traders can easily buy Tether from those exchanges. Here are the steps:

Step 1: Open an Account and complete the KYC process

First, choose the crypto exchange you want to buy Tether from and then open an account on the platform using your full legal name, email ID or phone number, address, age, and more. To be able to buy or sell USDT, the exchange will prompt you to finish the KYC process where you have to provide a government-issued ID. After the KYC process, you’ll be able to buy the token you want.

However, research the fee or commission that a crypto exchange charges as it can easily add up to a large number. 

Step 2: Buy a Wallet 

After choosing a crypto exchange and opening an account, choose a crypto wallet to keep your tokens safe. There are two types of crypto wallets: cold wallets and hot wallets. Hot wallets are basically software or an app that is always connected to the internet to provide access to your coins.

Cold wallets, on the other hand, are physical devices to hold your tokens offline. Cold wallets offer the maximum possible security for your investments. 

Step 3: Complete the Purchase

After steps 1 and 2, fund your crypto exchange account and you are ready to buy Tether. Simply search for Tether in the search bar, click on the USDT when it shows up, and finish the buying process. 

What is Tether Coin? Concluding Thoughts 

Tether (USDT) is a stablecoin, a type of cryptocurrency with a steady valuation and less volatility. It is the most liquid and actively stablecoin and it is the largest stablecoin by market capitalization, which is around $83 billion. This makes Tether the 3rd largest crypto token.

What is Tether Coin – FAQs – FAQs

1) Is Tether coin a good investment?

Tether offers stability, which means that you won’t be able to get a lot of returns in a short time, but it is an excellent value since its value will always be one dollar.

2) What is the point of the Tether coin?

Tether aims to be a “safe” digital asset with a stable valuation. It is pegged to the US dollar and its main goal is to maintain the same value as the pegged currency.

3) Does Tether coin make money?

Tether makes money by charging fees from the transactions, by issuing loans to other institutions, and via investments.