Digital currency USDT (Tether) - What is it? What is its purpose?

Shri

When it comes to Bitcoin and Ethereum, most people may have some understanding. USDT, known as "Tether" in Chinese, is a digital currency issued by Tether Ltd. that pegs cryptocurrencies to the value of the US Dollar. It is a virtual currency backed by a reserve of real-world currencies stored in foreign exchange reserve accounts.

Tether Ltd. claims that for every issued USDT, they store a reserve of 1 US Dollar. USDT holders can exchange their USDT for an equivalent amount of US Dollars with Tether Ltd. at any time. This anchoring of value to the US Dollar gives USDT the right to act as a credit derivative currency, becoming a quasi-Federal Reserve in the cryptocurrency world.

In terms of compliance, any operation involving fiat currency requires users to complete KYC authentication. When asked about how users verify the reserve fund in their bank accounts, Tether Ltd. states that the fiat currency is held by the company, subject to regular audits. However, users currently cannot directly inquire about the reserve.

USDT is also known as a stablecoin. Its origin as a stablecoin can be explained in the context of the cryptocurrency market's rapid development and the need for stability. The volatile nature of cryptocurrency prices and the absence of trading limits in continuous cryptocurrency trading led to the creation of stablecoins.

Some characteristics of USDT include:

1. **Stability:** Tether converts cash into digital currency, pegging it to the prices of national currencies like the US Dollar, Euro, and Japanese Yen. As Tethers are supported by real-world currency reserves, it claims to allow users to enjoy the benefits of blockchain-based transactions without being significantly affected by most cryptocurrency price fluctuations.

2. **Transparency:** Tether claims that its fiat reserve accounts undergo regular audits to confirm their ability to support the circulating value of Tethers (USDT). The balance is regularly updated and can be accessed publicly at any time. All Tether transactions are recorded on the public blockchain.

3. **Blockchain Technology:** Tether's platform is built on blockchain technology, utilizing its security and transparency features.

4. **Widespread Integration:** Tether is used on various exchanges, including Bitfinex, ShapeShift, GoCoin, and others.

5. **Security:** Tether's blockchain technology adheres to international compliance standards and regulations, providing world-class security.

The role of USDT:

USDT is primarily used as an intermediary currency for over-the-counter and fiat currency transactions. For example, if you intend to spend 10,000 CNY to buy Bitcoin, you can purchase USDT first from a fiat currency seller. The seller might offer a rate of 7.23 CNY/USD. After accepting the price, you will receive 1383.125864 USDT, and then you can use USDT to buy Bitcoin or other cryptocurrencies.

Some questions about USDT:

1. **How to Deposit CNY to Buy Coins on the Exchange?**
   Answer: CNY cannot be directly used to purchase digital currencies on exchanges. Users need to purchase USDT first with CNY, and then use USDT to buy other currencies. Exchanges usually have an entry to deposit CNY and exchange it for USDT.

2. **Is the Price of USDT Stable?**
   Answer: The price of USDT is generally stable, but it can experience fluctuations within a range of about 3%-5%.

3. **When Will the Price of USDT Rise or Fall?**
   Answer: The rise or fall of USDT is influenced by factors such as the value of the US Dollar. A decrease in the value of the US Dollar can impact a decrease in USDT, and vice versa. Additionally, during a bullish market, people tend to buy USDT to purchase cryptocurrencies, creating scarcity and causing an increase in USDT price. In a bearish market, people sell USDT to exchange for fiat currency, leading to an increase in USDT supply and a decrease in price.

People who may need to hold USDT include those who are concerned about the depreciation of CNY compared to USD, long-term players in the cryptocurrency market, and those who are bearish on Bitcoin and do not want to hold it in the coming period.

Advantages and risks:

USDT's main advantage lies in safeguarding investors' assets in the cryptocurrency market from market fluctuations. It acts as a value-preserving token in the volatile cryptocurrency market, maintaining an equivalent value to the US Dollar. However, the biggest risk is that Tether's issuance is entirely centralized, with all issuance, acceptance, regulatory risks, and operational risks concentrated in Tether Ltd. Despite Tether's commitment to a 100% reserve of US Dollars, the reserve is not entirely transparent, and it's unknown whether Tether has misappropriated the reserve or if there is an over-issuance of USDT.

977Iti

Many people are using USDT now; it's quite convenient.

Kahn332

USDT is very practical; it's stable for me.

Jafar224

I'm not sure what it's used for; I don't really understand.

Isha000

Can't quite explain what it is, but at least it's useful for us.