USDT or Tether is a cryptocurrency in the family of stablecoins. Stablecoins are coins that don’t drop below a certain value, often 1 USD or other fiat currencies. So, the cryptocurrency doesn’t go below 1 USD for example and it tracks the fiat currency. How is this done?
Well, a stablecoin has a 1:1 ratio backing, meaning for every USD you buy on the market, they keep that 1 USD in their vault. This is something called “1:1 pegged.” If there is 400 billion in the USDT market, the company behind it will hold 400 billion dollars in their reserves.
In this article, you’ll find a lot of complex and advanced terms, and if you don’t understand something, don’t worry, Spotcoin.com is a crypto news wire that breaks everything down nicely, and goes through reports more thoroughly than what is possible in this short article.
On paper, USDT should be 1:1 pegged, but the stablecoin has a reputation of being in trouble with the authorities, because instead of keeping a 1:1 cash or gold value in their reserves, they lend out money and write that off as money they’ll get back so that counts as a reserve backup. But, they were found lending money to an almost bankrupt Chinese real-estate company. So the chances of them getting that money back is small.
Also, a stablecoin company needs to perform external audits pretty much meaning that an external person needs to come in and take note of all the cash in the reserves. They report back to the public about the status of the backed up for the USDT you buy. Most companies perform an external audit once a month. However, Tether only does audits once in 4 months, and they have been known to get in trouble with the legitimacy of those audits.
What are alternatives to USDT?
There are a handful of alternatives out there for stablecoins. A few are DAI, USDC and BUSD. These are the best ones; there are some other less known ones like TrueAUS. The stablecoins USDC is developed by the big cryptocurrency exchange Coinbase and they perform monthly audits. So, USDC has the most trust among the advanced crypto traders. BUSD is a USD based stablecoin backed by the world biggest exchange Binance.
So, how come so many still buy USDT? USDT is widely supported across all blockchains, making it easy for beginners to get into because pretty much every exchange will support USDT.