What is Tether (USDT)?

What is Tether?

Tether (USDT) is a stablecoin issued by Tether Limited. As Tether Dollars is the company’s most popular token, Tether typically refers to it.

Who created Tether, and when?

Tether’s story began in 2012, when programmer J.R. Willett proposed the concept of new cryptocurrencies built on Bitcoin. Based on this, on July 31, 2013, the Mastercoin token was issued. To promote the protocol (later renamed the Omni Layer Protocol), the Mastercoin Foundation (later Omni Foundation) was set up. Among its founders was Brock Pierce, then chairman of the Bitcoin Foundation, and programmer Craig Sellars became CTO.

In July 2014 Pierce, Sellars and Riv Collins, an advertising-industry entrepreneur, launched the Realcoin start-up, headquartered in Santa Monica, USA. On October 6 that year, using Bitcoin and the Omni Layer protocol, the company issued Realcoin tokens.

“Realcoin will be fully transparent, reliable, secure and insured. Every dollar in our reserve will be represented by one coin in circulation with the possibility of redemption at any time. A one-to-one reserve will be fully available for audit,” the project’s creators said at the time.

On November 20, 2014, Realcoin CEO Riv Collins announced the project’s rebrand to Tether. The aim was to avoid association with altcoins. They explained:

“We are not an altcoin, we do not represent a separate blockchain. We are a service, a token representing dollars. We specialise in issuing currencies on the blockchain. Tether is a digital link to a real-world asset.”

Soon after, Tether Limited, registered in Hong Kong and the Isle of Man, announced a closed beta for three tokens: USTether (US+) for the US dollar, EuroTether (EU+) for the euro and YenTether (JP+) for the Japanese yen.

Tether also announced partnerships with the Hong Kong crypto exchange Bitfinex and three start-ups in which Brock Pierce was involved: Expresscoin, GoCoin and ZenBox.

In January 2015 Bitfinex listed Tether. Although representatives of Bitfinex and Tether said they were not connected, in November 2017 the Paradise Papers leak revealed that Bitfinex executives Philip Potter and Giancarlo Devasini founded Tether Holdings Limited in the British Virgin Islands.

According to Tether’s official website, the Hong Kong company Tether Limited is a subsidiary of Tether Holdings Limited.

How does Tether work?

Initially USDT tokens were issued only on Bitcoin via the Omni Layer protocol. However, since August 2023 the company has ceased issuing the asset on Kusama, Bitcoin Cash SLP and Omni Layer.

As of March 2024, new Tether (USDT) stablecoins are issued on Algorand, Avalanche, Ethereum, EOS, Liquid Network, Polygon, Tezos, Tron, Celo and Solana. Tether also issues stablecoins pegged to offshore Chinese yuan (CNHT), the Mexican peso (MXNT) and an ounce of gold (XAUT).

The circulation cycle for all Tether stable tokens includes the following stages:

• a user deposits fiat, traditional financial assets or cryptocurrency into a bank or deposit account of Tether Limited;
• the company creates Tether tokens at a rate of 1 USD = 1 USDT or 1 EUR = 1 EURT, 1 CNH = CNHT, 1 MXN = 1 MXNT, 1 XAU = 1 XAUT and lends them to the user. The tokens enter circulation;
• the user transacts with Tether: transfers, exchanges, and so on;
• the user makes a deposit with Tether for fiat redemption;
• Tether Limited destroys the submitted tokens and sends fiat to the user.

What backs the Tether (USDT) stablecoin?

Despite the price peg of its stablecoins to traditional counterparts, Tether tokens are backed by a basket of assets, including commercial paper, fiduciary deposits, actual cash, reverse REPO notes and Treasury bills.

In 2021 Tether began phasing out commercial paper from its backing. By end-March 2021, such assets accounted for 65% of the entire reserve basket. By the end of 2022 Tether had completely eliminated commercial paper from its backing, replacing it with US Treasury bills.

As of March 2024, Tether’s reserve structure is as follows:

• cash or equivalents in short-term bank deposits;
• corporate bonds, precious metals and bitcoin;
• loans to third-party companies;
• other investments.

Notably, around 80% of Tether’s reserves consist of US government bonds and securities placed via REPO. Up-to-date information on reserves can be found on the company’s website.