What Is Tether Cryptocurrency? – Forbes Advisor Australia

Tether, the leading stablecoin, operates on a simple yet sophisticated premise: maintaining a 1-to-1 peg with the US dollar. This stability isn’t achieved through mere aspiration but is backed by a robust system of reserves. The company behind Tether, Tether Limited, asserts that every Tether USDT token in circulation holds an equivalent or greater value in its reserves. These reserves are not just piles of cash sitting idly; they are a blend of liquid assets, including cash, short-term bonds, and term deposits.

Tether publishes daily reports detailing the total number of USDT tokens in circulation compared to the reserves it holds to ensure transparency and build trust with users. This practice is crucial, especially given the scrutiny and controversies the company has faced. High-profile investigations by regulatory bodies like the Commodity Futures Trading Commission (CFTC) and the New York Attorney General have delved into the adequacy and truthfulness of Tether’s reserve claims, highlighting the importance of transparency in the stablecoin market.

Acquiring Tether is straightforward and accessible to most investors through major cryptocurrency exchanges. When an everyday investor buys Tether from an exchange, the amount of USDT does not change. However, if a large institution wanted to convert a large amount of money directly into Tether, they would go to the company directly and provide the money in return for newly issued USDT.

For example, if an institution wanted to convert US$100 million in USD to USDT, they would provide the USD to Tether directly and receive 100 million USDT in return. The USD is kept in Tether’s reserves to provide backing to the newly issued USDT and maintain the stablecoin’s peg.

Conversely, when an institution decides to redeem USDT tokens for fiat currency, the USDT is destroyed or “burned,” effectively removing them from circulation. This mechanism ensures that the supply of Tether directly reflects the amount of reserve assets, maintaining the peg and the stability of the token.

Unlike some cryptocurrencies, Tether does not operate on its own blockchain. Instead, it leverages the infrastructure of other established blockchains to host its tokens. This approach allows Tether to benefit from these third-party platforms’ security, speed, and features.

Currently, USDT tokens are available across many blockchains, including Ethereum, Solana and Polygon. Each blockchain offers unique transaction speed, costs, and ecosystem advantages, giving users various options to manage and transact their USDT.