What Is USDT (Tether)?

What is USDT? In short, it is a digital token that tries to be worth exactly one US dollar at all times. It is issued by a company called Tether, which says each token is backed by reserves such as US Treasury bills and cash. Traders use it as a stable place to park value between trades, and many people use it to send dollar amounts across borders without a bank.

Why stablecoins exist

Bitcoin and most other crypto move in price constantly. That makes them awkward for pricing things or holding value for a few days. Before stablecoins, a trader who wanted to step out of a volatile coin had to withdraw to a bank, which was slow and sometimes impossible outside office hours. A token that tracks the dollar solves that: it moves on a blockchain, around the clock, but holds a steady value.

That is why so many exchange pairs are quoted against USDT. In BTC/USDT, the price tells you how many USDT one bitcoin costs.

How USDT is created and redeemed

Tether issues new tokens when approved customers, usually large firms, send it dollars, and it destroys tokens when those customers redeem them for dollars. Ordinary users normally never deal with Tether directly; they buy and sell USDT on exchanges or with other people.

The peg holds because of that redemption route. If USDT trades below $1 on the open market, large holders have a reason to buy it cheaply and redeem it with Tether for a full dollar, pushing the price back up. If it trades above $1, they can create new tokens and sell them. The mechanism only works as long as people trust that Tether can pay.

Tether publishes periodic reports on the assets it says back the tokens. Readers should understand that these are disclosures made by the company itself, which it says are checked by an outside accounting firm, and that holding USDT is not the same thing as holding a bank deposit protected by a government guarantee.

Networks: the part that trips people up

USDT is not on one blockchain. The same token is issued on several networks, each with its own addresses, speed and fees. Two of the most used are:

The golden rule: the sending and receiving side must use the same network. If an exchange deposit page shows a TRC20 address and you send from Ethereum, the transfer may not arrive, and recovering it, if possible at all, is slow and may cost a fee. Before any transfer, check three things: the network named on both sides, the first and last several characters of the address, and a small test amount first when the sum is large.

Network fees are paid in the blockchain's own coin, not in USDT, when you send from your own wallet. An exchange usually charges a withdrawal fee in USDT instead. As an illustration, sending 500 USDT through a platform that charges a 1 USDT withdrawal fee means the receiver gets 499 USDT.

Where USDT can go wrong

• Losing the peg. In stressed markets, USDT has at times traded slightly below one dollar. If you had to sell 1,000 USDT at $0.97, you would receive $970.
• Issuer risk. The token is only as good as Tether's ability and willingness to redeem it.
• Freezes. Tether can freeze tokens at particular addresses, for example at the request of law enforcement. This helps against theft but shows that the token is centrally controlled.
• Regulation. Rules for stablecoin issuers are tightening in several places, including the EU's MiCA framework, and exchanges may restrict certain stablecoins for customers in some countries.
• Wrong network or address. Still the most common way beginners lose USDT.

Other kinds of stablecoin

USDT is one of several designs. Knowing the differences helps you read claims about any stablecoin critically.

• Reserve-backed stablecoins, like USDT, are issued by a company that says it holds cash and short-term government debt equal to the tokens in circulation. Their strength depends on the quality of those reserves and the issuer's willingness to redeem.
• Crypto-backed stablecoins are created by locking up more crypto than the value of the stablecoins issued, managed by smart contracts. If the collateral falls sharply, positions are sold automatically to protect the peg.
• Algorithmic stablecoins try to hold their value through code that expands and shrinks supply, with little or no reserve. Some have collapsed completely when confidence broke.

Whatever the design, "stable" describes an aim, not a promise.

How people typically get USDT

Most people acquire USDT on an exchange, either by buying it with local currency or by selling another coin for it. Some use peer-to-peer marketplaces where individuals trade directly, which adds counterparty risk: you must be sure the other person has actually paid before releasing anything. Whichever route, the checks in our platform checklist apply, and the fees are covered in the trading fees lesson.

USDT compared with holding dollars in a bank

Checklist before your first transfer

1. Confirm which network the receiving side supports.
2. Select the same network on the sending side.
3. Copy the address, then compare its beginning and end by eye; malware can swap copied addresses.
4. Send a small test and wait for it to arrive.
5. Send the rest, keeping a record of the transaction ID.

Sources

• Tether, published reserve reports and terms of service
• European Union, Markets in Crypto-Assets Regulation (MiCA)