USDT: What is this currency and how to use it

Tether (USDT) is one of the most commonly used stablecoins in the crypto industry. In this article, we explore what USDT is, why stablecoins are needed, the different types of stablecoins, how they differ from each other, how it all works, and what role the US dollar plays in the process. The Trustee Plus team provides an overview of Tether’s characteristics, fiat backing, prospects, advantages, and disadvantages. We will also explain what USDT is in simple terms, how to use it, where to buy USDT, how to send it, and where to store stablecoins. Let’s dive in!

What is the Stablecoin USDT?

United States Dollar Tether (USDT) is the first and most popular stablecoin on the crypto market—a cryptocurrency token with a fixed price tied to a fiat currency, in this case, the US dollar. USDT was launched in 2014 by Tether Limited.

There are other stablecoins pegged to the dollar, such as USDC (USD Coin) from the CENTER project.

Why Was USDT Created?

Tether was created in October 2014 on the Omni Layer protocol of the Bitcoin blockchain as a more stable alternative to Bitcoin. Initially called RealCoin, the project was renamed to Tether in the same year. The first cryptocurrency exchange to launch Tether trading was Bitfinex. Later, it was revealed that Tether Limited is a subsidiary of Tether Holding Limited, founded by Bitfinex’s management, making the two companies closely connected.

The developers of Tether envisioned it as a “bridge” between cryptocurrencies and fiat currencies from the very beginning. The main goals of creating USDT included:

• Providing an alternative to volatile cryptocurrencies.
• Offering a 1:1 conversion rate between fiat and cryptocurrency.
• Increasing trust through a new method of verifying reserves, known as Proof of Reserves (an alternative to Proof of Solvency).
• Enabling transfers of national currencies, particularly cross-border transfers.
• Integrating with various payment and financial services.
• Reducing market risks.

Characteristics of the token

To describe Tether (USDT), it is often said to be a coin with key attributes:

• stability based on fiat currency collateral - to take full advantage of digital transactions on the blockchain without the risks associated with volatility;
• transparency - the website publishes the reserve amount daily and updates it at least once a day;
• convergence of cryptocurrencies and fiat currencies by simply exchanging dollars for Tether and vice versa.

How Tether works

According to the company's documentation, the circulation of USDT tokens is declared as a cycle:

1. A user (an individual or a legal entity - a cryptocurrency exchange or a cryptocurrency service) deposits
   fiat funds into the bank account of Tether Ltd;
2. The company issues tokens with the equivalent of $1 = 1 USDT;
3. The company lends USDT equivalent to the deposited USD to the user;
4. User performs transactions (transfers, exchanges);
5. User returns the Tether for deposit;
6. The company burns the deposited tokens and returns the USD to the user.

How the coin is secured

Each 1 USDT must be secured by 1 USD on the reserve balance of Tether Ltd. Therefore, the answer to the question of what equals 1 USDT is very simple: the exchange rate between USDT and USD must be 1:1.

Tether's support with USD has repeatedly raised doubts and rumors. For example, the company initially claimed that all tokens are fully backed by USD. In 2019. Tether Ltd changed its collateral policy, adding “other assets and upcoming loan proceeds” from third-party loans as collateral. At the time, it was found that Tether was only 74% secured by US dollars.

It is worth noting that the main basis for the doubt is the lack of a full independent audit of Tether Ltd. Some studies lead to the opinion that “other assets” will not be able to secure the remaining 26%.

The possibility of mining

Tether is not mineable, which means that the issuance of USDT can only take place after fiat funds have been deposited. This contradiction with the nature of digital assets stems from the main purpose of mediating between real and virtual assets.

The maximum issuance of coins is limited only by the amount of fiat funds deposited in the issuing company's accounts.

Advantages and Disadvantages of the First Stablecoin (Tether)

Despite being a “bridge” from fiat dollars to cryptocurrency, Tether has been associated with a lot of criticism, accusations, and suspicions. Below are the main advantages and disadvantages of working with Tether.

Advantages

• Stable Exchange Rate: Tether maintains a stable 1:1 value with the US dollar, providing a hedge against the volatility of cryptocurrencies.
• High Liquidity: USDT has one of the highest liquidity levels in the cryptocurrency market, making it easy to trade and convert.
• Availability on Various Blockchains: USDT is available on multiple blockchain platforms, offering more flexibility to users.
• Fiat Reserves: Tether is allegedly backed by fiat reserves (USD), adding credibility and reducing the risks of price fluctuations.
• Widespread Acceptance: USDT is widely accepted by many exchanges, platforms, and services, increasing its usability.
• Transaction Speed and Low Fees on Tron Blockchain: USDT transactions on the Tron blockchain are fast and inexpensive, making it ideal for quick transfers.
• Large Market Capitalization: USDT has a significant market capitalization, reflecting its wide usage and importance in the crypto ecosystem.
• Ease of Transactions: USDT is commonly used for cross-border payments, trading, and as a store of value.
• Reporting Transparency: Tether Ltd regularly publishes reports on its reserves, ensuring transparency and credibility.

Disadvantages

• Mandatory KYC for Deposits: Tether requires Know Your Customer (KYC) verification for users depositing fiat funds into Tether Ltd’s accounts.
• Centralized Control: Tether is controlled by a central entity (Tether Ltd), which goes against the decentralized ethos of cryptocurrencies.
• Lack of Independent Audits: The absence of independent audits raises concerns about the transparency and accuracy of Tether’s claims about its reserves.
• Questionable Reputation: Tether has faced significant legal and regulatory scrutiny, leading to concerns about its trustworthiness.
• Accusations of Market Manipulation: Tether has been accused of manipulating the cryptocurrency market, potentially causing price volatility.

Tether Subtypes

After the launch of USDT, the company expanded its range of stablecoins. However, these subtypes have not gained much popularity or demand:

• EURT (Eurocoin): Backed by the Euro.
• CNHT: Pegged to the Chinese Yuan.
• XAUT (Tether Gold): Backed by gold.

Types of USDT

Tether was initially launched on the Omni protocol (Bitcoin) but has since expanded to multiple blockchain platforms. These include:

• Omni (Bitcoin)
• ERC-20 (Ethereum)
• TRC-20 (Tron)
• EOS
• Liquid
• Algorand
• Solana
• OMG Network
• Bitcoin Cash

This multi-chain availability has boosted trading volumes and liquidity. In 2022, USDT Polygon was launched, replacing the Omni token, which has become less relevant.

Additionally, there are plans to launch USDT on the Lightning Network protocol in the future.

USDT on ERC-20: What is it?

In 2018, as transaction fees on the Bitcoin blockchain increased dramatically, Tether began issuing tokens on the ERC-20 protocol on the Ethereum blockchain, which was much more advantageous for trading. As a result, the use of USDT on Omni drastically dropped, and USDT on ERC-20 became the dominant version.

Issuing USDT on ERC-20 allows for greater interaction with smart contracts and decentralized applications (dApps).

USDT on TRC-20: What is it?

Tether launched on the Tron blockchain in April 2019, using the TRC-20 standard, which is similar to ERC-20 on Ethereum. The purpose of issuing Tether on Tron was to support the growth of decentralized applications (dApps) on the Tron network.

USDT on Polygon

Tether launched the USDT stablecoin on Polygon in the spring of 2022, adding to the variety of blockchains already supported by Tether. Polygon, formerly known as Matic Network, is a platform for developing and deploying decentralized applications (dApps) based on Ethereum’s blockchain.

Polygon offers high scalability through its Plasma technology, which allows for up to 65,000 transactions per second, vastly exceeding Ethereum’s capabilities. This makes transaction fees on Polygon lower than those on Ethereum.

Polygon also boasts high compatibility with other blockchains, simplifying integration and expanding the reach of decentralized applications. Numerous dApps are already deployed on the Polygon network, many of which use the native Polygon coin.

Which One is Better?

Among the key differences between the most popular Tether protocols (ERC-20, TRC-20, and USDT Polygon), the following stand out:

• Transaction Speed: Transactions typically take only a few seconds on Tron and Polygon, while Ethereum can take several minutes.
• Transaction Fees: The lowest fees are on TRC-20 and Polygon, while ERC-20 typically incurs higher fees.

Choosing between the different USDT versions depends on your intended use. For trading, ERC-20 is the best option. For high-frequency small transactions, TRC-20 is preferable. Tether Polygon is a balanced choice, suitable for both everyday transactions and institutional trading.

USDT Price and Market Cap

As of February 2024, USDT has a market capitalization of $97 678 677 997 (covering both ERC-20 and TRC-20 versions).

According to Coingecko, USDT ranks third globally by market cap, behind only Bitcoin and Ethereum. Additionally, Tether frequently leads the market in daily trading volume.

It’s worth noting that USDT’s price hasn’t always been entirely stable; at one point, it even reached $1.20. However, with steady growth in trading volumes and the overall market, the situation stabilized, and since early 2019, USDT has maintained minimal volatility, generally fluctuating within the range of 0.01-1%.

How to Use USDT

Tether is often used for payments on various online services, peer-to-peer transfers, and moving funds between exchanges. One of the main uses of USDT is for purchasing cryptocurrencies on platforms that don’t accept fiat money.

It is also worth noting that in times of significant market fluctuations, exchanging any cryptocurrency for Tether can be faster than converting it to fiat. Moreover, completing a USDT transaction only takes a few minutes or even seconds, while transferring USD via the banking system may take several business days. The difference in transaction fees for USDT transfers compared to SWIFT transfers is also in favor of the stablecoin.

How to Use Tether (USDT)

Stablecoins like Tether are often used for payments across various online services, peer-to-peer transfers, and for moving funds between exchanges. One of the most important uses of Tether is for purchasing cryptocurrencies on platforms that do not accept fiat currencies.

Key Points:

• During periods of high market volatility, it’s faster to exchange any cryptocurrency for Tether than to convert it into fiat currency.
• In traditional banking, it might take several business days to complete a USD transaction, while a USDT transaction can be completed in a matter of minutes or even seconds.
• The difference in transaction fees is also evident, as the cost of transferring USDT is significantly lower compared to SWIFT transfers.

Which Wallet to Choose for USDT

While the official wallet for Tether is Tether.to, you can store USDT on a variety of wallets:

• Hardware Wallets (e.g., Trezor, Ledger)
• Software Wallets
• Exchange Wallets

For different protocols, you can use wallets that support the specific blockchain (e.g., MetaMask for Ethereum-based tokens, TronLink for TRC-20 tokens) or multi-asset wallets like Trustee Plus. When selecting a wallet, consider factors such as the need for frequent access, security, and privacy.

Where to Buy USDT

USDT can be purchased directly on Tether’s official platform, although this requires detailed verification of your identity (including full name, address, and personal documents). Alternatively, you can buy USDT through:

• Crypto exchanges
• Crypto brokers
• Wallets

To buy USDT via Trustee Plus by using a bank card, follow these steps:

1. On the main screen, click “Top-up”.
2. Choose USDT.
3. Select P2P as the payment method (no commission for exchange).
4. Choose USDT and the local currency (e.g., EUR), then review the details and click “Next”.
5. Send the payment to the provided details.
6. After sending, click “Confirm Payment”.
7. Once your transfer is confirmed, you’ll receive USDT.

How to Convert USDT to Fiat

To withdraw USDT to your bank card (Visa or MasterCard), follow these steps:

1. On the main screen, click “Transfer”.
2. Select USDT as the currency.
3. Choose P2P as the method (no commission for exchange).
4. Select EUR and the bank you want to receive funds in. Check all details and click “Next”.
5. Provide your full name, card number, bank, and country.
6. The funds will arrive in 15 minutes. After receiving them, click “Confirm”.

The Future of USDT: Mass Adoption or Scam?

Despite the numerous negative media mentions surrounding USDT, many predictions suggest that Tether will continue to grow rapidly and may even secure the second spot by market capitalization in the cryptocurrency market. USDT is widely accepted by crypto services, as well as platforms that can process payments in multiple fiat currencies.

The lack of need to constantly convert between fiat and crypto makes Tether a highly useful and in-demand asset. Its positioning as a fiat-backed token also contributes to the overall popularity of the crypto industry.

However, if an independent audit reveals significant gaps in Tether’s reserves, it could lead to a negative outlook for the entire crypto ecosystem, with consequences for its reputation.