Currencies changed forever when Bitcoin made its appearance in 2009. And the most important ones have their crypto pair. In this article We are going to confront the USD vs USDT, it crypto pair.
The ability to trade Bitcoin to USD made BTC valuable just by its circulation instead of being backed by precious metals, or the economic activity of a nation.
This created a new type of currency, backed by cryptography, that was independent of any nation or financial institution.
Of course, cryptocurrencies such as Bitcoin suffered from one issue which made them hard to use for regular people, high price volatility.
The swing of BTC coins impeded its use as money because people were not sure if the coins used today would be more valuable or less in the future.
As such a new kind of cryptocurrency was born, the stablecoin. And so it started the discussion between USD vs USDT.
These would maintain their value stable over time and retain their global reach, the most popular has been USDT and in this article, we'll review its history.
Tether with the ticker USDT began its history with the name Realcoin in 2014 under three prominent creators Brock Pierce, Reeve Collins, and Craig Sellars.
The team published its first whitepaper in July of the same year. Detailing the basic inner working of a Fiat backed stablecoin.
In November of 2014, Realcoin changed its name to Tether and decided to launch three Fiat backed stablecoins to the market Tether USD, Tether Euro, and Tether Yen.
The project would be on top of Omni Layer. A 2nd layer development environment built on top of the Bitcoin Blockchain.
Omni Layer was chosen because it runs on the Bitcoin network. So, it was easier to support Bitcoin to USD from this protocol.
Originally, and still to this day, all Tether transactions would be secured by the Bitcoin Network through Omni Layer.
The first Tethers in circulation were sold through Bitfinex, and it is a partnership that continues to this day as we'll explain later.
The success of Tether USD made it a very popular way to trade Bitcoin to USD and vice versa increasing the demand for more coins.
As a result, Tether has minted USDT on top of other Blockchains such as Ethereum using the ERC20 standard, Tron, EOS, Algorand, and SLP.
At the time of this writing there is 19,933,142,041.41 USDT and 40,001,800.00 Euro Tether (EURT) in circulation.
The Yen stablecoin was not released and Tether instead has built a Yuan based stable coin.
Tether is the first and, to this date, most successful stablecoin on the market.
Mostly used for Bitcoin to USD trades. It achieves this price stability by being a Fiat backed cryptocurrency.
This type of stablecoin maintains a 1 to 1 peg to the US dollar by having an equal amount of US dollars reserves as the amount of USDT in circulation.
Now let us walk through the process of how tether is minted.
First, the issuance of USDT is controlled by Hong-Kong based Tether Limited under a treasury model.
Here institutional investors, such as crypto exchanges, deposit US dollars to the Tether treasury and in exchange. They get newly minted USDT.
The new USDT is only issued in batches of round numbers once there are enough US dollars in the treasury (100 million USDT for example).
The newly created USDT is deposited to Bitfinex and only here the people who deposited US dollars are able to withdraw their minted USDT.
As said, only institutional investors have access to this account. Regular people cannot send US dollars to Tether Limited for USDT.
Also, the reverse is not possible. If I have 1000 USDT I cannot exchange them for 1000 US dollars at the Tether treasury.
The dollars deposited there are permanently locked in that account.
Theoretically, this means that the Tether treasury is holding 1 US dollar for every 1 USDT it exists in circulation.
The institutions minting the Tether request on which blockchain their USDT tokens should be issued on.
The most popular option is Ethereum, and Omni Layer is the second.
But Tether on Ethereum is not compatible with other blockchains so, you should always be aware of what type of USDT you hold and never send Ethereum Tether to a Tron wallet because it will be lost.
The popularity of Tether only keeps growing and almost 20 billion USDT has been minted. Again, Bitcoin to USD being the general use case.
Why are there so many? And what are its most common uses?
Perhaps by now some of its uses are obvious to you, but others may surprise you:
Of course, the main purpose of USDT is as a trading pair in crypto markets.
Since it holds its value over time, it can be deposited in crypto wallets for long periods of time without the risk of devaluing.
Since it is a crypto token, it is accepted by most major crypto exchanges and can be used to buy a variety of crypto coins and tokens. The most popular of course is Bitcoin to USD.
This has become the main use case for Tether and stablecoins in general. It has led to its massive growth in the market, and now it is more accepted than ever.
Connected to the previous use case, USDT is an excellent way to exit the crypto market.
Since it remains in a ratio of 1 to 1 with the US dollar, traders use USDT to exit trading and cash in their profits.
Since it is faster to exchange Bitcoin to USDT than Bitcoin to USD because USDT already exists in the blockchain while dollars are in the old financial system.
A popular use case for USDT especially in developing countries suffering from inflation is saving.
If you buy USDT with your local currency, you are essentially buying US dollars.
In this way, your savings will be protected from inflation and you will have access to it faster than using a traditional exchange house.
USDT is also one of the most used tokens in money markets and crypto savings protocols such as Aave and Compound.
By using USDT and depositing in these places you can get annual yields of 10% or even higher.
Since USDT is basically dollars many people use it in replacement for US dollars.
So, they send USDT to their family back home or any type of transaction across borders.
Many times sending USDT is much cheaper than using traditional systems like Western Union or MoneyGram.
Also, many people sending BTC tend to quickly change it to USDT.
This mirrors the Bitcoin to USD operation, making sure that the people receiving the money are not affected by the price volatility of Bitcoin.
Lastly, international finance is done with US dollars, but sometimes these are hard to get.
Another great use for Tether is to pay for imports for a business.
Many large scale retailers are accepting USDT in place of USD because it is easy to use and goes around the traditional finance channels.
| USD | Tether USDT | |
|---|---|---|
| Centrality | Centralized | Hybrid |
| Acceptability | Global | Global |
| System it supports | Legacy Financial System | Blockchain |
As with any Fiat currency, the US dollar is managed through the Federal Reserve of the United States.
They are the ones that decide their supply by setting the interest rates of various financial instruments.
Additionally, the US government is in charge of regulating which financial institutions get access to the US dollar and policing counterfeited bills in circulation.
Even though Tether is on the blockchain it is a hybrid of centralized and decentralized.
All the reserves of US dollars that exist are held by one institution in Honk-kong as we discussed before.
They decide how much to issue and who can access these newly created USDts first.
Now, USDT is decentralized because it uses the blockchain when doing transactions.
Once it has been minted is no longer in control of Tether Limited and can be bought by anyone using a crypto wallet.
And can be used to go back to the Fiat world like Bitcoin to USD, if in the middle the trader uses USDT. That is why it is a hybrid system.
The US dollar is the most accepted form of Fiat money on the planet.
Almost all international transactions are denominated in USD and many national banks hold substantial reserves of dollars to do commerce abroad.
Much the same USDT is the most used stablecoin on the planet.
It is a critical piece of crypto exchanges because it allows users to buy and sell crypto coins with a token that is not volatile
. More and more are breaking from just crypto and being used for other cases like commerce and remittances that have nothing to do with trading Bitcoin to USD as an example.
The US dollar is the backbone of the SWIFT banking system and commodity commerce on the planet.
Anytime you send money through the banking world most of the time it gets turned into USD before arriving at its destination.
USDT is becoming the backbone of the crypto economy as it quickly allows for the exchange of cryptocurrencies, and serves as a safe market exit that will hold its value over time.
It serves as the intermediary between Bitcoin to USD because it is easier to get USDT in crypto exchanges.
Bitcoin to USD remains the most popular trading pair in crypto.
The high volatility of crypto coins makes them hard to use as everyday money, as a result, stablecoins were created.
These are cryptocurrencies that retain the same value over long periods of time by being pegged to a Fiat currency such as the US dollar.
The most popular is Tether and it has been growing exponentially over the past few years.
It is replacing USD when it comes to securing the value of trades and exit strategies.
As a result, it is also growing in other markets like remittances and international commerce.
It will only continue to grow in adoption and market share as the crypto economy expands.
For more dApps to access using USDT read our Top 12 (Best) Ethereum DApps to Use in 2021.
