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What is Tether and should you invest in it?
Tether (commonly denoted as USDT) is a stablecoin hosted on several blockchains like Bitcoin, Ethereum, Tron, and Solana. A stablecoin is a cryptocurrency whose value is tied to the value of another cryptocurrency, fiat currency, or a commodity like gold.
Tether was one of the first stablecoins to be launched. Its value is tied to a fiat currency, the US Dollar (or USD), which is why it was named USDT (USD Tether). Each Tether token is pegged at a 1:1 ratio with the US Dollar, so one USDT would always be equal to one USD, irrespective of the fluctuations in demand.
There are five Tether crypto tokens in circulation today - USDT, EURT, MXNT, CNHT and XAUT. The value of each is pegged at a ratio of 1:1 to the US Dollar, Euro, Mexican Peso, offshore Chinese Yuan, and a troy ounce of gold, respectively.
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This article is over two years old, last updated on July 21, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent cryptocurrency articles.
What is the purpose of stablecoins like Tether?
Cryptocurrency prices are subject to market speculation and are known to be highly volatile. The volatility in prices has been one of the primary reasons for the slow adoption of crypto by many people. When Tether was introduced, it quickly became popular as a means to bridge the volatile nature of cryptocurrencies by pegging crypto to a real-world currency.
Tether combined the best of two worlds, the stability of fiat currencies and the neutrality of the blockchain technology, by pegging the value of a Tether token to USD and operating it over a blockchain.
After the launch of Tether, various other stablecoins have been launched to allow people to digitise traditional currencies and use them over the blockchain without worrying about the volatility of the crypto market.
How to buy or trade Tether tokens?
Tether tokens can be purchased using fiat currency by creating an account on Tether's official site Tether.to or using a crypto exchange platform that lists Tether tokens. You can also swap other cryptocurrencies for Tether tokens using a crypto exchange platform or transfer them from one wallet to another.
When a purchase request is placed through Tether.to or a crypto exchange platform, Tether issues new tokens and sends them to the user's wallet address. The amount of tokens issued is equal to the deposited amount minus the transaction fee. These tokens can then be used for financial transactions, transferred, traded, or just stored.
You can also exchange your Tether tokens for fiat currency through your Tether.to account or an exchange platform. When you exchange Tether tokens for fiat money, Tether removes these tokens from circulation and then deposits an equal amount in fiat currency to your linked bank account.
Some people might consider Tether (USDT in particular) to be a safer investment than other cryptocurrencies because it is pegged to the USD's value. Keep in mind that being a stablecoin doesn't make Tether any less risky than other cryptocurrencies.
Holding USDT in your crypto wallet isn't the same as holding US Dollars, for example. Even though the value of USDT is linked to US Dollars, there's no guarantee that Tether would have enough money to pay out every investor if lots of them decided to swap their Tether tokens for US Dollars.
Even though Tether says on its website that every USDT is backed by its reserves of cash and cash equivalents, in reality, only a small percentage of this reserve is held in cash. Therefore, just because Tether is a stablecoin doesn't mean it has zero risk. This doesn't mean you should not buy Tether or other cryptocurrencies if you want to; but you must do your research to take a calculated risk with your money.
It's worth remembering that Tether cannot be considered an investment in the conventional sense. It is a way of digitising fiat currency more than an investment. The value of Tether is designed to not change over time, unlike other cryptocurrencies, so you may not benefit from an increase in price. Some cryptocurrency exchange platforms like Binance offer interest on Tether, which could be one way of earning a profit.
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