Tether (USDT) is a controversial cryptocurrency issued by the company Tether Limited. USDT is a stablecoin that is pegged to the U.S. dollar and traded with it at a 1:1 ratio. The stable price of Tether provides a way to participate in the otherwise highly volatile cryptocurrency market with more security.
Founded in July 2014 by Brock Pierce, Craig Sellars and Reeve Collins, Tether (USDT), originally known as "Realcoin," is a cryptocurrency commonly referred to as a "stablecoin". Tether was one of the first stablecoins in the crypto market, built on top of Mastercoin (Omni). Omni is a protocol layer for Bitcoin that introduced the stablecoin concept in 2012, pioneering what is now known as the fiat-backed stablecoin model. Today, USDT is one of the most widely used stablecoins by market capitalization, along with USDC and PAX.
USDT: the first stablecoin
Tether was created as an attempt to address two major issues with existing cryptocurrencies: high volatility and convertibility between fiat currencies and cryptocurrencies. To address these perceived issues, Tether created a cryptocurrency that is fully backed 1:1 by US dollar deposits held in banks. On Ethereum, USDT tokens are represented as ERC-20 tokens, while Tether uses the Omni layer on top of bitcoin to represent USDT tokens. While the tokens themselves operate on a decentralized network, Hong Kong-based Tether Ltd. is solely responsible for issuing and redeeming the tokens and maintaining 1:1 deposit backing.
Exchanges have been the primary users of USDT as an alternative to fiat currencies, reducing or eliminating the need to maintain external banking relationships. Notable exchanges using the token include Bitfinex, Bittrex, Binance, Coinbase, Kraken, Huobi, Poloniex, Liquid.io, Gate.io and OKEx. Tether Ltd. shares many executives and maintains close ties with Hong Kong-based Bitfinex, both of which are owned by the same parent company, iFinex Inc.
Tether Controversy
Over the years, there has been controversy surrounding Tether Limited. They have been accused of price manipulation and holding less than the promised 100% reserves in fiat. So far, the crypto company has been able to deny the allegations. Parent company iFinex Inc. has been involved in a lawsuit since 2019, allegedly withdrawing $800 million from Tether's reserves to cover lost customer funds. The case was dismissed in February 2021.
Shortly thereafter, in the same year, the US Commodity Futures Trading Commission (CFTC) fined the company $41 million for misrepresenting Tether's dollar backing. Due to the lack of transparency, it is unclear how much reserves are actually available. However, a few years later, Cantor Fitzgerald's Howard Lutnick, a Wall Street titan whose firm manages money for Tether, confirmed that Tether has the necessary reserves.
