Tether (USDT) definition: A cryptocurrency pegged to the value of the US Dollar and the largest fiat-collateralized stablecoin by market cap.

Tether (USDT) is a unique type of cryptocurrency known as a stablecoin. Unlike most cryptocurrencies that exhibit price volatility, stablecoins are designed to maintain a relatively stable value, often pegged to a traditional fiat currency like the US Dollar. Tether was one of the earliest stablecoins and remains the most widely used stablecoin in the cryptocurrency ecosystem by market cap.

Tether (USDT) is designed to hold a value equivalent to that of the US Dollar. Each USDT token is typically backed by a reserve of assets, which can include a mix of actual fiat currency, other assets, and financial instruments. This backing contributes to the stability of the token's value.

The primary objective of Tether is to provide price stability in the often volatile cryptocurrency market. By pegging its value to a stable asset like the US Dollar, Tether aims to offer a reliable medium of exchange and a store of value in an often volatile market.

This stability makes it suitable for cross-border transactions, as it can serve as a digital representation of traditional fiat currency. This can reduce the time and costs associated with international money transfers and currency conversion.

Tether is widely used on cryptocurrency exchanges as a trading pair for various other cryptocurrencies. Traders often use USDT as a way to temporarily exit the market without converting their holdings into traditional fiat currency.

Tether's model of maintaining value stability involves backing each USDT token with assets held in reserves. However, the specifics of these reserves and the level of transparency have been subjects of debate within the cryptocurrency community. Tether Limited, the company behind Tether, periodically releases attestations of its reserves, although some level of skepticism remains within the crypto community.

Stablecoins like Tether have garnered attention from regulatory authorities due to their potential impact on the traditional financial system. Regulatory agencies around the world including the SEC have been evaluating stablecoins to ensure they comply with existing financial regulations and do not pose risks to financial stability.

Tether's success has inspired the creation of numerous other stablecoins, each with its unique features and mechanisms for maintaining stability. Some stablecoins are pegged to assets other than traditional fiat currencies, such as commodities or other cryptocurrencies.

As a pioneering stablecoin, Tether offers a stable alternative to the price volatility often associated with other cryptocurrencies. Its widespread adoption on cryptocurrency exchanges and its role in facilitating cross-border transactions demonstrate the demand for stability within the dynamic cryptocurrency ecosystem. As regulatory scrutiny and innovation continue to shape the stablecoin landscape, Tether remains a prominent player in providing stability and accessibility to the world of digital assets.

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Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Nov 9, 2023
This article has been fact checked and reviewed as per our editorial policy.