The volatility of cryptocurrencies  is a double-edged sword. On the one hand, volatility offers excellent opportunities for investors. But, on the other hand, volatility makes it difficult to use cryptocurrencies as a store of value.

But did you know that there is a way to eliminate the harmful properties of volatility? Stablecoins like Tether (USDT) serve precisely that purpose.

Tether (USDT) is a token pegged to the dollar
Tether (USDT) is a token pegged to the dollar

What is Tether (USDT)?

The cryptocurrency industry is changing. A large number of new products have been created in recent years. Perhaps the most striking of these is Stablecoin, a special kind of digital coin that helps speed up the emergence of digital money in people's everyday lives.

To somehow regulate the exchange rate, they decided to peg cryptocurrencies to the value of assets long ago established in the economy. Therefore, cryptocurrencies began to be pegged to oil, precious metals and even fiat money. So, in theory, a digital currency could be tied to a commodity or valuable asset. This would back up the value of the cryptocurrency with collateral.

Cryptocurrencies that are pegged to physical assets show less volatility, which is why they began to be referred to as stablecoins - cryptocurrency that maintains a fixed value compared to other types of currency or crypto assets.

Tether (Stablecoin Token USDT) was created in 2014 by Tether Limited, a company based on blockchain, that manages and issues assets which are linked to the traditional fiat market price. Since its launch, Tether USDT has become the world's most popular stablecoin and it is continuing to grow. It has achieved this despite some controversy surrounding it in the initial stages of the project.

Tether (USDT) is the world's third most capitalised and first traded cryptocurrency, whose exchange rate is always stable due to its peg to the US dollar.

These days, Tether's popularity is primarily due to its ability to provide liquidity and hedge against market volatility, justifying its name as a pegged stablecoin.

How does Tether work?

Tether works as a digital token built on several blockchain protocols, including Bitcoin, Ethereum, Algorand, OMG, EOSIO (EOS), Tron (TRK) and SLP blockchains. These available options allow users to create more assets  in their own blockchains.

In fact, the Ethereum blockchain currently occupies the largest market for USDT.

To better understand how USDT works, we must look at how it is created. 

Tether was originally released using the Omni Layer protocol. The Omni Layer protocol is a decentralised, open-source platform built on top of the Bitcoin blockchain. This blockchain-based technology allows Tether Limited to mint and burn tokens in its custody based on the amount of fiat reserves (USD) that must match the USDT offering.

In theory, each token has a corresponding USD held as collateral in the company's reserves. According to Tether Limited, it is technically possible that the total number of Tether tokens in circulation could be tracked and reported through a protocol. However, this assertion has raised one of the biggest criticisms of USDT, which is their reluctance to be fully audited.

Tether is the most famous stable coin
Tether is the most famous stable coin

What makes Tether so important?

So why are so many people looking to buy Tether? How is it that Tether is the third-largest market capitalisation? 

Essentially, Tether's primary purpose is to provide a hedge against market volatility. If you're still new to the cryptocurrency world, you've probably learned that market volatility makes cryptocurrency trading a perilous adventure.

The easiest way to explain volatility is to describe it as the degree to which the price of an asset fluctuates over time. In other words, crypto-assets are volatile because their prices tend to move up or down aggressively and unpredictably at any time.

Tether functions on a BTC blockchain
Tether functions on a BTC blockchain

Distinguishing features of USDT

To understand why to buy USDT, let's look at what sets Tether apart from other cryptocurrencies. 

Features of USDT:

  • Stable exchange rate. The deviation from the $1 price throughout its existence is minimal. For example, according to CoinmarketCap, the change over 52 weeks: from $0.9903 to $1.03.
  • Base pairs with Tether dominate centralised exchanges. They account for 65% of transaction volume. And back in 2017, they accounted for just 5% of trades, with around 50% of agreements being in Bitcoin and 40% in US dollars. In 2021, BTC pairs accounted for less than 15% of transactions. Because of this, some crypto analysts have commented that the token has taken over and supplanted the market.
El proyecto Tether busca constantemente nuevas soluciones para transferencias más rápidas
El proyecto Tether busca constantemente nuevas soluciones para transferencias más rápidas
  • Stablecoin is adapted for use in the DeFi space. In particular, the platform is collaborating with Aave, a cryptocurrency lending company. In addition, derivatives (derivatives) backed by stablecoin are already being issued.
  • There are no restrictions on issuing or destroying tokens. Therefore, there will be no liquidity problems.
  • Market turmoil, "black swans" (hard-to-predict, infrequent events, and unpredictable but significant consequences) do not affect the cryptocurrency. After all, the project relies on its reserves backing the tokens.
  • Most of the coins are located on crypto exchanges' balance sheets (about 70%). And 5% is locked up in DeFi smart contracts. The Binance exchange leader held 16+ billion tokens generated through the TRON protocol in August 2021. In second place was Huobi Global (1,865,000,000 USDT also TRC-20 standard).

Coin emission

The company has decided not to limit the emission of new Stablecoins. It is showing a reasonably rapid issuance rate, which has repeatedly caused excitement among crypto investors and regulators, as they were wary of market fluctuations.

The generation of new tokens increases the capitalisation of the project.

A mechanism to limit emission is usually needed for cryptocurrencies to combat high volatility and inflation. But Stablecoin does not need it. Therefore, the lack of restrictions is justified.

More about Omni Layer 

We've already mentioned that Tether is built on Omni Layer. But what exactly is it? To understand why it's worth investing in Tether, we need to figure out the specifics of its structure.  

The Omni open source project was built on a Bitcoin blockchain that provides a decentralised, distributed, peer-to-peer trading platform. 

This trading platform was created jointly by an Omni Layer team, which wanted to enable exchange between different parties without involving an intermediary. 

Omni acts as an interface between the main chain of BTC blocks and its users, facilitating the creation and exchange of user-oriented tokens or cryptocurrencies. They can represent values such as the right to certain intellectual assets and other cryptocurrencies. 

The digital currency is based on an open source Omni Layer protocol that works with blockchain
The digital currency is based on an open source Omni Layer protocol that works with blockchain

One of the best-known examples of an asset built on the Omni Layer is USD Tether (USDT). USDT is by far the largest user of the protocol, with more than 75% of transactions. Other users of the protocol include MaidSafeCoin, Synereo and Omni. The protocol aims to keep the bitcoin chain secure by allowing users to create and trade digital assets. 

These tokens can be bought and sold anytime, and transactions remain secure thanks to the bitcoin network protocols.

The impact of Bitcoin

As mentioned above, the Tether cryptocurrency was created based on the Omni Layer software protocol based on the Bitcoin blockchain. Therefore, Stablecoin has several disadvantages inherent in bitcoin.

For example, the cryptocurrency's creators have not yet taken any steps to address scalability issues with the crypto network, which could cause a slowdown in the crypto-assets popularity among users in the future.

According to experts, the need to deposit fiat funds into the crypto network's account indicates the cryptocurrency platform's incomplete anonymity.

Another disadvantage is the inability to mine, which immediately alienates part of the user community.

Many users are puzzled by Tether's link to fiat money. In fact, it is directly opposite to the very idea of creating digital currencies, the purpose of which was decentralisation, providing for a departure from the established traditional global financial system. But, on the other hand, the coin has become a bridge between two financial worlds: real and virtual.

How to buy USDT

To buy Tether in New Zealand, you need to be registered on a cryptocurrency exchange. After that, you will be able to buy USDT with your own credit card or other crypto-assets. 

For example, an exchange platform like Binance provides a secure and instant way to buy USDT using your credit card, Bitcoin, Ethereum or any other supported cryptocurrency.

How else can you invest in Tether?

There are many things you can do with USDT. For what to invest in Tether in New Zealand profitably, you can:

1. Hodl or store it in a cryptocurrency wallet.

You can leave your Tether in a wallet and wait for the right opportunity to trade it.  

Try to choose a trustworthy wallet anyway. 

2. Send or transfer USDT tokens.

You can easily send or transfer your Tether tokens anywhere in the world. This is a fast and cheap way to transfer money.

3. Spend on it or buy things.

Many companies now accept Tether as a viable and reliable way to pay, mainly because it is pegged to USD.

4. Exchange USDT for fiat currency or other crypto-assets.

You can easily convert your Tether into real money. But, of course, you can also convert tether tokens into any other cryptocurrency. 

5. Donate USDT tokens.

Many charities around the world accept Tether as a donation. Like Stablecoin, USDT allows you to see the exact amount equivalent to the fiat currency you want to donate, without the hassle of exchange rates, especially if you are donating to an international organisation.

However, the biggest advantage for this cryptocurrency remains the stability of the exchange rate. Therefore, this option is suitable for those seeking to preserve their savings or protect them from inflation.

In the cryptocurrency market, stablecoins function as a buffer
In the cryptocurrency market, stablecoins function as a buffer

The big future

Tether could help us take a new look at the use of cryptocurrencies, as it is designed to be used with many existing cryptocurrencies. Right now, USD Tether, or USDT, is mainly used, but we can safely assume that other variants are being developed.

Proof-of-History (PoH) is a blockchain synchronization algorithm with an internal clock showing the same time on all nodes
Proof-of-History (PoH) is a blockchain synchronization algorithm with an internal clock showing the same time on all nodes

However, this technology is at an early stage of development. When it becomes mainstream, we will see the impact it has on our finances. Nevertheless, we are happy to see such promising initiatives emerging in the crypto industry, and we hope this project will open up even more opportunities for crypto-enthusiasts.

The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose