Introduction

Tether (USDT) is a stablecoin that has gained significant relevance in the cryptocurrency ecosystem. Unlike other cryptocurrencies such as Bitcoin or Ethereum, whose value fluctuates considerably, Tether is designed to maintain a stable value, linked to the price of the US dollar (USD). This type of cryptocurrency has been widely adopted as a tool to reduce the risk associated with the volatility of other cryptocurrencies, providing a bridge between fiat money and crypto assets.

1. What is Tether?

Tether is a stablecoin, that is, a cryptocurrency whose main characteristic is that its value is linked to an underlying asset, in this case, the US dollar. The idea behind Tether is to maintain a 1:1 peg with the USD, meaning that for every Tether in circulation, there must be one dollar stored in reserve. This peg ensures that, in theory, the price of one Tether is always equivalent to one dollar, offering stability to users.

• USDT, Tether's token, is primarily used on cryptocurrency exchange platforms to facilitate quick conversion between crypto assets without having to go through traditional fiat currencies.
• Tether was launched in 2014 by the company Tether Limited and has played a key role in providing liquidity in crypto markets, thanks to its stability and widespread acceptance.

2. Differences between Tether and other cryptocurrencies

Tether has several key differences compared to other popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH):

• Stability vs. Volatility:

  • Tether (USDT): It maintains a stable value, as it is backed by fiat money reserves (mostly dollars). This makes it a safe option for those who want to avoid market fluctuations.
  • Bitcoin and Ethereum: They are volatile assets, meaning their value can change drastically in short periods of time. While these assets have high return potential, they also carry significant risk due to their speculative nature.

• Purpose:

  • Tether: Its main purpose is to act as a bridge between fiat currencies and cryptocurrencies, facilitating trading without exposing users to volatility. It is also used as a safe haven during periods of instability in the crypto market.
  • Bitcoin: It is considered "digital gold" and was designed as a decentralized payment system, with the goal of becoming a long-term store of value.
  • Ethereum: In addition to being a cryptocurrency, its smart contract platform powers decentralized applications (dApps), making it a key tool in the development of decentralized and blockchain solutions.

• Asset-backed:

  • Tether: It is backed by reserves in dollars or other assets, which ensures the stability of its value. However, there has been controversy over the transparency of such reserves.
  • Bitcoin and Ethereum: They are not backed by any physical or fiat asset, but their value is based on market supply and demand, leading to high volatility.

• Use in markets:

  • Tether: It is mainly used for trading, as a safe haven coin when investors are looking to protect themselves from volatility without leaving the crypto ecosystem. It is also used in international transactions, especially in countries with unstable financial systems.
  • Bitcoin and Ethereum: These are used both as long-term investments and for payments in decentralized applications and services (in the case of Ethereum).

In short, while Bitcoin and Ethereum are more focused on technological innovation and being stores of value, Tether has a more practical approach, providing stability and functionality as a digital equivalent of the dollar in the crypto ecosystem.

3. Tether's Importance in the Crypto Ecosystem

Tether (USDT) has been one of the most influential cryptocurrencies in the digital finance space due to its role as a stablecoin. Its importance in the crypto ecosystem can be understood through several key aspects:

• Stability in a Volatile Market

The cryptocurrency market is known for its high volatility, with large fluctuations in the price of assets such as Bitcoin and Ethereum. In this context, Tether offers a form of refuge for investors and traders. Being pegged to the value of the US dollar (USD), Tether provides a relatively stable option for parking funds without having to leave the crypto world. This is crucial, especially in times of sharp price drops.

• Facilitates fast trading and transactions

Tether plays a central role in cryptocurrency exchanges by offering an efficient and fast alternative to exchange other cryptocurrencies. Most of the largest exchanges support USDT due to its high liquidity, allowing traders to move funds quickly without the need to convert their assets into fiat (traditional money). By keeping the value stable at 1 USD, it facilitates trading between cryptocurrency peers, increasing the operational efficiency of exchanges.

• Foundation for the development of DeFi products

Tether has also been crucial in the rise of decentralized finance (DeFi). Many DeFi protocols rely on stablecoins to execute smart contracts, make loans, and offer financial products. USDT, with its wide acceptance, is frequently used on DeFi platforms as a means of collateralization or as an exchange token on networks such as Ethereum and Tron. Its presence in these systems helps mitigate volatility, making it a reliable option for decentralized projects.

• Facilitates international transactions

Another important aspect is the facilitation of fast and inexpensive international transfers. Unlike traditional bank transfers, which can be slow and expensive, Tether allows users and businesses to efficiently move funds across borders. Additionally, it is a method increasingly used in regions with banking restrictions or unstable economies, where accessing strong currencies such as the dollar is complicated.

• Providing liquidity for the ecosystem

Tether is one of the main providers of liquidity in the cryptocurrency markets. Due to its large volume of circulation and adoption, markets that operate with Tether have the capacity to absorb large amounts of trading without causing extreme volatility. This stabilizes not only the price of USDT, but also the functioning of markets in general.

• Bridge between the traditional financial system and the crypto world

Being directly linked to the value of the US dollar, Tether has positioned itself as a gateway for new users and traditional capital to enter the cryptocurrency ecosystem. Investors who want to participate in the crypto market without taking on the risks of extreme volatility can use Tether as a reliable entry and exit point.

• Multi-chain adoption and expansion

Tether's ability to operate on multiple blockchains (Ethereum, Tron, Solana, among others) makes it a highly flexible option for different networks. This not only facilitates mass adoption, but also allows for interoperability between different crypto ecosystems. Its expansion across multiple chains broadens Tether's use cases and ensures that it remains a relevant option in the future of blockchain technology.

History of Tether

1. Origins and Foundation (2014)

Tether (USDT) was launched in 2014 as the first stablecoin in the cryptocurrency market, created to address a crucial challenge affecting early cryptocurrency users: the extreme price volatility of assets like Bitcoin and Ethereum. The idea behind Tether was to provide a cryptocurrency that was pegged 1:1 to the value of a fiat currency (primarily the US dollar), allowing users the stability needed to transact without being exposed to price fluctuations.

Tether's creators, Brock Pierce, Reeve Collins, and Craig Sellars, established this cryptocurrency under the name "Realcoin" in its initial phase. However, in November 2014, the name was officially changed to Tether. The goal was simple: to offer a digital currency that combined the advantages of cryptocurrencies (speed, security, decentralization) with the stability of fiat money, a revolutionary idea at the time.

Tether Limited, the company behind Tether, launched its first tokens on the Bitcoin blockchain using the Omni Layer protocol, a platform that allowed assets to be issued on the Bitcoin network. This initial choice allowed Tether to operate on a robust and secure network, although the token was later expanded to other blockchains to adapt to the growing demand.

The Tether Foundation was also closely connected to Bitfinex, one of the largest exchanges in the world at the time. Bitfinex actively supported the use of Tether on its platform, facilitating the conversion between dollars and cryptocurrencies, which catapulted the popularity of the stablecoin. However, this relationship also generated controversy in later years due to the lack of transparency in the reserves that backed the value of the tokens issued.

In short, Tether was introduced Tether was launched as an innovative solution to volatility issues in the crypto space, quickly attracting the attention of investors and users looking for a stable alternative to move their funds within the ecosystem. Since its launch in 2014, Tether has grown to become a key player in the cryptocurrency markets, facilitating transactions, arbitrage, and participation in DeFi platforms.

2. Creators: Bitfinex and its relationship with iFinex Inc.

Tether (USDT) was developed in 2014 as the first stablecoin cryptocurrency, whose value is pegged 1:1 to the US dollar. The creators of Tether are closely associated with the cryptocurrency exchange platform Bitfinex, which has sparked several controversies and debates surrounding its management and transparency.

Bitfinex, founded in 2012, is one of the largest and most popular exchanges in the world, known for offering an advanced trading platform for cryptocurrency users. Behind Bitfinex and Tether is the company iFinex Inc., which operates both the exchange and issuance of Tether. iFinex Inc. is a company registered in Hong Kong and is comprised of a group of individuals with extensive knowledge in financial technology and blockchain.

Relationship between Bitfinex and iFinex Inc.

The relationship between Bitfinex and Tether has been questioned due to both being controlled by the same individuals and parent companies, raising concerns about conflicts of interest. iFinex Inc. is the legal entity that oversees both Bitfinex and Tether Limited (the company that issues USDT). This duality of operations has generated criticism for the lack of clarity in the separation between Bitfinex funds and Tether reserves, which has led to regulatory investigations in several countries.

In 2019, the New York Attorney General's Office (NYAG) sued iFinex Inc., alleging that Bitfinex had used Tether reserves to cover an $850 million shortfall that arose due to issues with its payment processor. This case highlighted the opacity that existed in the finances of both entities and the lack of adequate audits to ensure that each USDT issued was fully backed by dollars or other liquid assets.

Controversies and public trust

Although Tether has been crucial to liquidity in cryptocurrency markets and is used in a wide range of global transactions, its partnership with Bitfinex has raised questions about the financial integrity of both companies. The lack of full public audits and the delayed response to investigations have been persistent issues. However, despite these controversies, Tether remains the most widely used stablecoin, due to its mass adoption across exchanges and decentralized finance applications.

In short, the relationship between Bitfinex and Tether via iFinex Inc. has been a driving factor in both Tether's success and criticism. This connection remains an area of ​​interest for regulators and cryptocurrency users alike.

Tether (USDT) Definition

1. Stablecoin

Tether (USDT) is a cryptocurrency that is classified as a stablecoin, meaning that its value is designed to maintain a peg to a fiat currency, in this case, the US dollar (USD). Unlike other cryptocurrencies such as Bitcoin or Ethereum, whose value can fluctuate drastically in short periods of time due to market volatility, Tether is intended to maintain a stable value of 1 USDT = 1 USD.

Main purpose of a stablecoin: The goal of stablecoins, such as Tether, is to provide users with the ability to access the benefits of cryptocurrencies (such as fast transfers, global accessibility, and decentralization) without the high volatility that characterizes most digital currencies. This makes them useful for several functions within the crypto ecosystem, such as:

• Safe haven in times of volatility: During periods of extreme price fluctuations, traders can convert their crypto assets into Tether as a measure to protect themselves from market volatility.
• Inter-cryptocurrency exchange: Facilitates trading between different cryptocurrencies by allowing for faster transactions without relying on traditional banks or having to convert to fiat money.

Stability through reserves:
Tether's stability comes from its backing in real assets. Tether's issuing company, Tether Limited, claims that each Tether unit issued is backed by equivalent reserves in US dollars or other assets that guarantee its stability. These reserves are held in bank accounts or other financial instruments that are regularly monitored and audited to ensure that the amount of Tether in circulation is covered by equivalent assets.

Types of Backing:
Although USDT is the most well-known version of Tether, which is Pegged to the US dollar, there are also other variants of Tether pegged to other fiat currencies such as:

• Tether Euro (EURT), pegged to the euro.
• Tether Gold (XAUT), backed by physical gold.

In short, Tether as a stablecoin acts as a bridge between the world of cryptocurrencies and traditional finance, providing a stable and accessible option for users who want to interact in digital markets without facing the volatility that typically plagues crypto assets.