What is USDT? - Reading time: about 3 minutes
In general, stablecoins are a subgroup of cryptocurrencies that have the element of stability and are less open to fluctuations in value. Unlike volatile cryptocurrencies, a key differentiating characteristic of stablecoins is that they are tied to a reserve asset such as fiat currencies (e.g., USD, EUR) or commodities like gold or oil.
As the largest stablecoin by market at $72B, USDT plays a significant role as an on-chain, digital form of fiat and is the most widely used stablecoin of the asset subclass that rely on a USD-peg to achieve dollar parity.
Hong Kong-based Tether Limited essentially serves as the main issuer, custodian, and wallet with a primary objective of maintaining USDT’s dollar peg based on a 1:1 backing. Alongside its flagship USDT are several stablecoins, or tethers, backed by various fiat currencies including EURT, CNHT, gold-pegged XAUT, and the recently added peso-backed MXNT.
Tether Limited is sometimes likened to a digital bank as it essentially provides a fiat alternative for the unbanked as well as exchanges and other blockchain platforms that often struggle to establish a mutual cooperation with a recognized financial institution.
Why use USDT?
Through USDT, retail investors get access to their own digital dollar which can be safely stored in a hardware wallet, providing them with a price-stable hedge to move in and out of markets based on the current temperature.
As with any stablecoin whether of the fiat-backed, crypto collateralized, or algorithmic flavor, how USDT is backed, the quality of its reserves, and the expedited nature of redemptions and readily accessible liquidity remain among the key criteria for gauging its long-term viability as a legitimate digital dollar.
Is USDT fully backed?
To maintain an equivalent 1:1 fiat-collateralized ratio, Tether Limited adjusts the supply based on the amount of fiat deposits and withdrawals it receives.
For every fiat deposit, an equivalent amount of USDT is minted and added to the circulating supply. Conversely, USDT is burned for each redemption requested, removing the tokens from circulation.
USDT continues to be mired in a significant amount of controversy over the uncertain nature of its backing. Up until around 2021, Tether had failed to release a single attestation or audit to provide transparency over how, and more importantly, to what extent its reserves were collateralized.
That all changed following an $18.5M fine imposed by New York District Attorney Letitia James following an investigation proving that Tether remained fully unbacked for the greater duration starting from 2017 due to having “no access to banking, anywhere in the world.”
For a full history behind Tether and Ifinex, refer here.
The fine led to improved insight over reserve backing through quarterly disclosures certified by account MHA Cayman over the nature of Tether’s backing, which is currently spread across cash and cash equivalents, corporate bonds, and other investments.
The latest consolidated reserves report dated on March 31, 2022 certifies full backing with consolidated total assets equivalent to $82,424,821,101 exceeds its liabilities, i.e. the total amount of Tether in circulation. Furthermore, the report indicates a 17% decrease in commercial holdings while increasing its US t-bills reserves by 13%.
During the initial stages of the UST death spiral, a total of $10.5B in USDT were subsequently redeemed, sparking conversation on whether the large-scale redemption was merely a cap in the feather demonstrating the resilience of the mechanism, or a sign of a potential bank run in the works.
How to buy USDT on ProBit Global
ProBit Global users can buy USDT using a credit card by accessing the fiat-on ramp which currently supports over 40 fiat currencies.