Key takeaways
- USDT is a stablecoin issued by Tether, intended to be worth $1.
- Creation and redemption by approved customers keep its market price close to $1.
- It is exposed to issuer, regulatory and operational risks.
How the peg works
Approved customers can create USDT by depositing dollars with Tether and redeem USDT for dollars. If USDT trades below $1, they can buy it cheaply and redeem it at par; above $1, they can create and sell it. This arbitrage is similar in spirit to how currency boards defend a fixed exchange rate, but it depends on a private company's reserves.
What backs it
Tether reports reserves mainly in short-term US Treasury bills, plus other assets. It publishes periodic reserve reports; readers can check the latest breakdown and the type of assurance provided.
Why traders use it
- As the quote currency on crypto exchanges.
- To move dollar value between platforms at any hour.
- To park funds between trades without converting back to bank money.
Networks
USDT exists on several blockchains, notably Tron (TRC20) and Ethereum (ERC20). Transfers must use a network the recipient supports. Fees differ: Tron is typically cheaper for transfers.
Risks
- Issuer and reserve risk; no deposit insurance.
- Short de-pegs during market stress.
- Freezes at specific addresses by the issuer.
- Regulatory changes affecting where it can be offered.
Common questions
Is USDT a currency?
It is a token that tracks a currency. It is not legal tender and is not issued by a government.
Can USDT be used on forex platforms?
Some offshore providers accept it for deposits. Check whether any such provider is authorised in your country before using it.
Sources
- Tether transparency reports