Originally published on September 10, 2020 and updated on October 24, 2024

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Cryptocurrency volatility is often a double-edged sword—on the one hand, it offers significant profit potential. On the other hand, using crypto as a stable store of value makes it challenging. But what if there was a way to eliminate the instability? Enter Tether (USDT), a stablecoin designed to reduce volatility while maintaining the perks of cryptocurrencies. Here’s how it works.

What is Tether (USDT)?

Imagine the word tether in its traditional sense: on a farm, animals are tethered to a post, or in technology, your phone might be tethered to a WiFi network. Tether similarly anchors itself in the crypto world—but instead of linking physical objects, it is pegged to the US dollar. Tether belongs to a particular class of cryptocurrencies known as stablecoins, which aim to offer stability by being pegged to fiat currencies.

Each Tether token maintains a 1:1 ratio with the US dollar, meaning 1 USDT equals 1 USD. Tether Limited ensures this stability by holding equivalent reserves in fiat currencies. Tether doesn’t have a supply cap, unlike other cryptocurrencies, because its issuance is based on demand and the corresponding reserves.

Why does Tether matter?

Let’s say you want to convert 50 USD into USDT. In return, you’ll receive 50 USDT, which can now be easily traded, exchanged, or redeemed in the crypto market. The value stays stable, making it helpful in storing value, trading, and transactions without worrying about the unpredictable price fluctuations typical of cryptocurrencies like Bitcoin or Ethereum.

For example, if the Bitcoin market turns bearish, traders often convert their BTC into USDT to protect their funds from loss. Later, they can repurchase BTC when the price drops, allowing them to hold their assets in USDT during market downturns and capitalize on the recovery.

Tether offers a unique advantage in cryptocurrency by combining blockchain technology’s benefits with the stability of traditional fiat currencies. Whether you’re an individual trader, exchange, or merchant, using Tether minimizes the volatility risk and makes crypto transactions faster, safer, and more efficient.

Key features of Tether

1. Stable and 100% Backed: Tether’s value remains stable as each USDT token is backed by reserves in fiat currency, ensuring the 1:1 ratio.
2. Transparent: Tether Limited publishes daily reports confirming that the circulating USDT matches its fiat reserves.
3. Secure: Built on blockchain technology, Tether benefits from the security and transparency of the blockchain.

Who can benefit from using Tether?

1. Exchanges

Exchanges benefit from offering USDT trading pairs, simplifying converting fiat into cryptocurrency. By removing the need for multiple steps or waiting for confirmations, USDT pairs streamline transactions, making the experience smoother, especially for new traders.

2. Individuals

For individual traders, converting assets into USDT shields them from losses in bearish market conditions, preserving their digital assets until the market stabilizes.

3. Merchants

Merchants who accept Tether enjoy the benefits of stable pricing, free from the risk of price drops and chargebacks associated with traditional cryptocurrencies. This stability simplifies operations and makes integrating cryptocurrency payments into businesses easier.

What is Tether used for?

Tether has several famous use cases among traders, investors, and regular users. Here’s how it’s commonly used:

• Trading: Tether allows traders to hedge against market volatility without converting their holdings into fiat currency.
• Transferring money: Thanks to its stability, Tether is often used to quickly transfer large sums of money across exchanges or borders with minimal fees.
• Savings: In regions with volatile local currencies, users can hold their money in Tether to protect it from devaluation.

Beyond these use cases, Tether is increasingly used for remittances, offering a faster and more affordable way to send money internationally than traditional banking systems.

What are the risks associated with Tether?

Despite its popularity, Tether comes with its own set of risks that users should be aware of:

• Reserve transparency: While Tether claims to be fully backed by reserves, there has been controversy about the transparency of these reserves. Many critics argue that Tether has not provided sufficient evidence to prove that every USDT is fully backed.
• Regulatory scrutiny: Tether has faced legal challenges and investigations regarding its reserve holdings and business practices. As the stablecoin market grows, regulatory oversight is expected to increase.
• Counterparty risk: Users must trust that Tether Limited has enough assets to back the USDT in circulation. If the reserves are not sufficient, it could lead to liquidity issues.

Comparing Tether (USDT) to other cryptocurrencies

1. Stability

• Tether (USDT): As a stablecoin, USDT is pegged to the US dollar, maintaining a stable value of approximately $1. This makes it less susceptible to the extreme volatility typically seen in other cryptocurrencies.
• Bitcoin (BTC): Bitcoin is known for its high volatility, with prices often fluctuating by large percentages within short time frames. This volatility can present opportunities for investors but also significant risks.
• Ethereum (ETH): Like Bitcoin, Ethereum experiences notable price swings. Various factors, including developments in the Ethereum network and the broader crypto market, can influence its value.

2. Use cases

• Tether (USDT): Primarily used as a medium of exchange and a haven during market downturns, USDT enables traders to hedge against volatility and facilitates quick transfers between exchanges without converting back to fiat currency.
• Bitcoin (BTC): Often regarded as digital gold, Bitcoin is used as a store of value and a speculative investment. Its decentralized nature makes it a popular choice for peer-to-peer transactions.
• Ethereum (ETH): Beyond being a cryptocurrency, ETH is the native currency of the Ethereum platform, which supports smart contracts and decentralized applications (dApps). It is frequently used in DeFi (decentralized finance) projects.

3. Liquidity

• Tether (USDT): Tether offers high liquidity, making buying and selling on various exchanges easy without significant price impacts. It is often used as a trading pair for other cryptocurrencies.
• Bitcoin (BTC): the most traded cryptocurrency boasts high liquidity. However, its price fluctuations can lead to larger spreads between buying and selling prices.
• Ethereum (ETH): Ethereum has substantial liquidity, especially in DeFi and NFT markets. It is commonly traded against various cryptocurrencies and fiat currencies.

4. Regulatory scrutiny

• Tether (USDT): Tether has faced scrutiny regarding its reserve backing and transparency. Regulatory bodies have expressed concerns about whether fiat reserves fully back USDT.
• Bitcoin (BTC): Bitcoin has been subject to regulatory debates but generally benefits from a more established legal framework in many jurisdictions. It is widely recognized and accepted as a legitimate asset.
• Ethereum (ETH): Ethereum’s regulatory environment is evolving, particularly concerning its use in DeFi. Regulatory clarity is still developing, with discussions around securities and commodities classification.

5. Investment risks

• Tether (USDT): While USDT offers stability, it carries risks related to reserve transparency and regulatory scrutiny. Users must trust that Tether Limited maintains adequate reserves.
• Bitcoin (BTC): Bitcoin’s volatility presents high-risk potential for investors. Price swings can lead to significant gains or losses.
• Ethereum (ETH): Ethereum’s price can be affected by network upgrades, changes in gas fees, and competition from other innovative contract platforms, adding to its risk profile.

How to buy Tether (USDT) through Paxful

Tether is one of the cryptocurrencies supported on Paxful. Here’s how you can easily get started:

Step 1: Sign up

• Sign Up: Create a Paxful account using your phone number or email address.
• Verification: Verifying your account adds an extra layer of security to protect your investments.

Step 2: Pick a payment method

• Proceed to the Buy USDT page after verifying your Paxful account.
• In the sidebar, select a payment method, enter the amount you want to spend in your preferred currency, and then hit Search for Offers.

Step 3: Find a suitable offer and review the terms

• Go over each offer and review their terms and conditions. Keep an eye on the rates set by the sellers, as well as their reputation scores and feedback, to gauge their credibility

Step 4: Complete the transaction

• Follow seller instructions: To complete the transaction, follow the seller’s instructions carefully. This may involve:
  • Providing payment details.
  • Uploading proof of payment.
  • Chatting with the seller for clarification.
• Credit to account: Once the seller confirms your payment, the USDT you purchased will be credited to your Paxful account.

A Promising future for stablecoins

Tether (USDT) is already changing how we view and use cryptocurrency. While USDT is the first and most widely adopted Tether currency, other fiat-pegged stablecoins are in development. As stablecoins like Tether become more integrated into the crypto ecosystem, we expect to see more real-world applications that merge crypto and traditional finance.

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