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Tether is a cryptocurrency that's not volatile and pegged against the US Dollar — here's everything you need to know

Jun 17, 2021, 17:58 IST
Bitfinex
  • Stablecoins are cryptocurrencies that are pegged against an existing fiat currency, like the American Dollar.
  • They aim to mitigate the volatility that normally comes with other cryptocurrencies like Bitcoin or Ethereum.
  • Among the stablecoins, Tether is considered the most popular among all with a market cap of more than $60 billion.
The world of cryptocurrency is synonymous with volatility, as the value of Bitcoin and other currencies has always been highly dynamic. But, a new type of cryptocurrency is trying to change that narrative — enter Tether, the world’s first stablecoin.

While other stablecoins have entered the market, Tether is considered the most popular till date, with a market cap of more than $60 billion. It requires a custodian to regulate the currency and then reserves a certain amount of collateral as security.

Tether’s origin story
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Originally called ‘RealCoin’, the possibility of building a stablecoin was first proposed in 2012. The idea was that 1 Tether or USDT would be worth $1. So, 100 USDT would be $100 and so on.

The first tokens were finally issued two years later by co-founders Brock Pierce, Reeve Collins, and Craig Sellers. And, come 2015, the Hong Kong-based cryptocurrency exchange, Bitfinex, was the first to host the cryptocurrency on its platform. Today, it's used by Binance, WazirX, Huobi, and many more exchanges to provide liquidity and a hedge against market volatility.

However, it has had its fair share of controversies since then.
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Tether’s shady past

In 2017, it was revealed that Tether and Bitfinex shared the same management and corporate team. It proved that the two companies were closer than they wanted to admit publicly, and Bitfinex played a critical role in encouraging its adoption by floating it on the exchange.

Critics have regularly pointed out that it could be a scam because there's no real collateral to back the cryptocurrency. The company has tried giving out loans to its affiliates as collateral, but transparency and audits were greatly limited.

In 2019, iFinex , the parent company of Tether Ltd., was accused of trying to cover up an $850 million loss by taking over around $700 million of Tether's cash reserves and using it to repay investors. The company said the sum was kept for safeguarding and wasn't seized.
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How are stablecoins different from other crypto currencies?

Cryptocurrencies like Ether and Bitcoin operate on the free market principle, which means that their worth is purely commanded by supply and demand. While this makes them an excellent opportunity to make a quick buck, it also makes them very unreliable.

A ‘currency’, in the traditional sense, has to be stable for people to rely on it for everyday transactions. Fiat currencies, like the Dollar or the Rupee, are controlled and regulated by central banks to keep a check on inflation, debt, and other external factors.
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Bitcoin, Ethereum, and other coins cannot offer this stability, making them a less favorable option for those looking to park cash temporarily.

Stablecoins, on the other hand, are cryptocurrencies that are pegged against an existing fiat currency, like the American Dollar.

We can say that stablecoins have a fixed value because their daily fluctuation is negligible. Stablecoins can be pegged to anything, including gold and silver. In addition to Tether (USDT), TrueUSD (TUSD), MakerDAO (DAI), and Paxos Standard (PAX) are some of the most widely used stablecoins.
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Despite a few inconsistencies, Tether has stood the test of time and continues to offer what it claims — a simple, stable coin that's ideal for parking cash with minimal risk.


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