What is Tether: The Dollar-Backed Token That Promises Stability

There is a token pegged to the US dollar, trying to make cryptocurrency trading more intuitive.

Tether, or USDT, is a cryptocurrency designed with the special task of moving from fiat currency into cryptocurrencies, while providing an intuitive way to track prices. Tether is most actively used on Poloniex. And while there are many other ramps to exchange dollars into cryptocurrencies, Tether offers an alternative route.

Tether Market Price

The Tether coin, as its name speaks, is backed by reserves of US dollars. The supply of coins varies to ensure the price remains stable, although recently there were fluctuations above and below $1.

Tether has the following parameters:

Market Price Market Capitalization (319,501,318 USDT outstanding) 24-Hour Trading Volume
$0.95-$1.01 $321,6 mln $183,5 mln


Why use Tether?

Tether makes sure there is only one step in between joining an online exchange and paying for the order. The problem with online exchanges is each of them requires a separate process of authentication. Tether allows users to go through the process only once, and from then onward to quickly place a buy or sell order on exchanges that support USDT pairs.

Otherwise, users may have to go through two separate exchanges, to buy a "ramp currency," a token that is available for cash. Then, if they need a less widely available token, they would need to find the right exchange and the right exchange pair.

The Tether platform and wallet simplifies this process, allowing users to fund USD or EUR to their account, and then face no barriers to trading.

The Tether Network

The Tether technology is built on top of the Bitcoin blockchain. Tether works on what is known as the Omni Layer, an asset platform built upon the Bitcoin protocol. The system also offers its Omni Wallet to store assets, including USDT.

Funding the Tether Account

Tether is not anonymous. The system requires registration with a standard two-factor verification. The last step is to verify your identity and payment method so you can fund your account.

This is part of the requirement for exchange services based on anti-money-laundering (AML) laws. The process is rather involved, also requiring a proof of personal identity: utility bills, and a bank statement. There is an added layer of difficulty- if the documents are in another language, users may need to present a certified translation. The process of verification then requires a waiting period.

When it comes to cryptocurrencies, this kind of verification process is becoming more widespread. Tether has reserved the right to ask for additional information and may request a contact with a representative of the Compliance Department.

Tether Wallets

While it is possible to keep your USDT on Poloniex, there are dedicated desktop wallets for USDT. FreeWallet has created a Tether Wallet that is a light client, that is, it does not need to synchronize with the whole Bitcoin Blockchain.

Trading Tether

So if you decide that Tether is worth the hassle and you are ready to go through the rigorous verification process, Tether will give you access to some dynamic currency pairs with gains potential.

Tether is the move to make if you feel brave enough to become a trader or investor through Poloniex  and Bittrex, two exchanges with a vast array of tokens, some allowing for rather risky positions.

But Tether is also primarily for Bitcoin, as the chart shows the most active positions. If you need a lesser-known coin or token, you may have to acquire Bitcoin, Litecoin, Ethereum or Dash, and then find the right trading pair.

# Source Pair Volume (24h) Price Volume (%) Updated
1 Poloniex BCH/USDT $35,283,900 $0.983544 19.86% Recently
2 Poloniex BTC/USDT $34,366,200 $1.00 19.34% Recently
3 Poloniex ETH/USDT $22,154,900 $0.992787 12.47% Recently
4 Bitfinex USDT/USD $14,155,200 $1.00 7.97% Recently
5 Bittrex BTC/USDT $12,810,400 $1.00 7.21% Recently


Tether Risks

So Tether holds US dollars. But it holds them in a bank in Taiwan. When you own USDT, you are also exposing yourself to general banking risk.

Also, there are temporary failures in the service, and even a recent login process led to a warning that currenlty, funding an account was offline.

Add to this a multi-step verification waiting process and smaller or bigger glitches in the service, and Tether starts to rate lower compared to more traditional ways to get on board with cryptocurrencies.

Also, moving out of USDT and back into cash is a slower process, requiring rather high fees.

Tether is, in theory, pegged to the dollar, but the process is imperfect. The fluctuations in demand mean that temporary fluctuations in price may make trading less lucrative and cause a price punishment of up to 5%. Users worry when Tether veers off the mark.

Tether and Regulations

Tether may exist to divert attention from exchanges, where taking in cash would attract the regulators. If Tether did not exist and verify its users rigorously, Poloniex would need to add a similar process. Some users compare Tether to tokens used in amusement parks, where carrying around cash would be deemed risky or cause a legal hassle.

Similar Assets

Tether is somehow similar to Steem Dollars, a cryptocoin pegged to the US dollar. But Tether has a broader influence, while Steem Dollars are mostly used to monetize rewards from the Steemit social network.

The Verdict on Tether

Tether is just one way to get on board with cryptocurrencies. It is a matter of preference and using the most comfortable platform to make a purchase. While Tether is quite far from the volatility in other coins or tokens, there is still risk and selling may not be liquid enough. Also, you would have to be comfortable with Poloniex and Bittrex to make the most use of your USDT. Do your due diligence and avoid locking in funds you cannot afford to lose.