Case Study: USDT

Background

Cryptocurrency as a new asset class, that’s only a little more than a decade old, has seen a series of steep rises and subsequent falls. In truth, cryptocurrency is one of the most volatile non-derivative financial assets on the market — and is considered to be more volatile as a category than stocks.

Every day, Bitcoin swings by more than 3% on average.

Tether strives to tackle the price volatility problem of cryptocurcurrency

Tether belongs to a fast-growing breed of cryptocurrencies called stablecoins, which aim to keep the price of their tokens stable, most commonly by tying it to the price of a traditional currency like the U.S. dollar. (Tether also issues tokens pegged to the euro, the offshore Chinese yuan, and gold, none with more than a small fraction of the market cap of its U.S. dollar-pegged USDT tokens.)

The peg to a traditional currency, often backed by collateral reserves made up entirely or mostly of the pegged currency, is meant to ensure stablecoins aren't subject to the same price volatility as more speculative cryptocurrencies like Bitcoin. The chief operating officer of Many Worlds Token Steve Bumbera says,

The idea is that 1 Tether (USDT) can always be traded for $1, regardless of market conditions.

Tether (often referred to by one of its currency codes, USDT), is a fiat-backed cryptocurrency stablecoin. It was launched by the company Tether Limited Inc. in 2014. Tether Limited is owned by the Hong Kong-based company iFinex Inc., which also owns the Bitfinex cryptocurrency exchange. As of July 2022, Tether Limited has minted the USDT stablecoin on ten protocols and blockchains. Tether is the first and best-known stablecoin in the crypto world. It is described as a stablecoin because it was originally designed to be valued at USD $1.00, with Tether Limited maintaining USD $1.00 of asset reserves for each USDT issued.

In contrast, cryptocurrency like Bitcoin is not backed by any asset.