Glossary

Tether (USDT)

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Glossary Crypto Heroes Tether Lesson

Tether (most commonly shortened as USDT) is a cryptocurrency issued by Tether Limited. Its value is pegged on the value of fiat currencies. The company claims that each Tether token is backed by one US dollar. However, it may not necessarily be redeemed through the Tether platform. It is designed to be a stablecoin since its worth is always USD 1. It is the second most traded crypto after Bitcoin.

Brief History

J.R. Willett came up with an idea of developing new currencies on top of Bitcoin protocol in January 2012. Willett went on to create a cryptocurrency known as Mastercoin. It was associated with Mastercoin Foundation that was later renamed to Omni Foundation and promoted the idea of a second layer. The Mastercoin protocol later became the technological foundation and brought together Brock Pierce and Craig Sellars as the Tether co-founders. Initially, USDT was released as Realcoin tokens on October 2014 on the Bitcoin blockchain using the Omni Layer Protocol. Railcoin was changed to Tether on November 20, 2014, and the company announced the support for three currencies USTether (US+) for United States Dollars, EuroTether (EU+) for Euros and YenTether (JP+) for Japanese yen. The company also announced that every Tether token will be backed 100% by its original currency and can be easily redeemed without the worries of exchange risk.

In January 2015, Bitfinex allowed the trading of USDT in their platform. The Paradise Papers leaks in 2017 showed that Tether and Bitfinex are sister companies run by the same management, but the two companies have come out to deny the allegations.

For years, USDT was processing US dollar transactions using the Taiwanese banks which then sent the money through Wells Fargo to allow US clients to receive their money. However, the company severed the relationship with these banks, and it is now unclear which banks they use today.

In June 2017, Charlie Lee who is the Omni foundation founder disclosed that Tether would soon have an Omni layer in Litecoin platform. By the end of September 2017, Tether launched additional ERC-20 tokens for United States Dollars and Euros on the Ethereum blockchain. At the moment, there are a total of four different Tether tokens: United States Dollar Tether on Bitcoin’s Omni layer, Euro Tether on Bitcoin’s Omni layer, United States Dollar Tether as an ERC-20 token, and Euro Tether as an ERC-20 token.

Tether controversies

In the recent past, USDT has been on the news for all the wrong reasons. A research by John M. Griffin and Amin Shams in 2018  showed that Tether was used to manipulate the Bitcoin prices. A tag that the company has struggled to shed off since it was widely publicized. There have also been questions about the dollar reserves, and Bitfinex has been accused of creating imaginary Tethers. The company promised to release a comprehensive audit report to prove that all the USDT coins are dollar backed in September 2017 but the audit report has never been published. The U.S. Commodity Futures Trading Commission opened an investigation to establish whether Tether was involved in price manipulation and its findings are yet to be released.

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