# What Is Tether (USDT)? Understanding Its Importance and Uses

![Tether (USDT)](https://www.investopedia.com/thmb/PIvZusP8hR0BUS5nm7ygtRIckgs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Tether-0e4991ed30b349e39c5907b8d4d92169.png)

*— Investopedia / Daniel Fishel*

## What Is Tether (USDT)?

Tether (USDT) stands as a prominent stablecoin in the [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp) market, uniquely pegged to the U.S. dollar to mitigate the volatility typical of digital currencies. Issued by Tether, under the umbrella of iFinex, which also operates BitFinex, USDT provides stability through its reserves in U.S. dollars.

By March 2024, it emerged as the third-largest cryptocurrency by market capitalization, after [Bitcoin](https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcusd) and Ethereum, and maintained its position as the leading stablecoin with nearly $99 billion in market capitalization. Throughout 2023 and into 2024, USDT accounted for the majority of cryptocurrency exchange transactions by volume, underscoring its critical role in the crypto ecosystem.

### Key Takeaways

*   Tether (USDT) is a stablecoin that is pegged to the U.S. dollar, designed to maintain price stability in the volatile cryptocurrency market by being backed by Tether's dollar reserves.
*   USDT is the leading stablecoin, with a market capitalization close to $99 billion as of early 2024, underscoring its significant role in the crypto market as a bridge between cryptocurrencies and traditional currencies.
*   Tether's operations and transparency have faced scrutiny, including a $41 million fine by the CFTC in 2021 due to issues regarding the backing of reserves, yet it remains committed to honoring its 1-to-1 commitment with the U.S. dollar.
*   Tether experienced a price dip in May 2022, briefly falling to $0.96 during market turmoil, and subsequently rebounded, illustrating both the vulnerabilities and resilience of stablecoins in maintaining their pegged value.
*   Tether’s expanding influence includes new ventures, such as acquiring Northern Data Group in 2023 to advance into artificial intelligence, reflecting its continued efforts to grow beyond just being a stablecoin provider.

## Understanding Tether (USDT)

USDT, or Tether, belongs to a fast-growing type of cryptocurrency called stablecoins which avoid the extreme volatility of untethered cryptocurrencies, most commonly by tying their values to the price of a traditional currency like the U.S. dollar.

Tether was launched as RealCoin in July 2014 and was rebranded as Tether ([USDT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=usdtusd)) in November 2014. Originally based on the Bitcoin [blockchain](https://www.investopedia.com/terms/b/blockchain.asp), Tether now supports Bitcoin's Omni and Liquid protocols as well as the Ethereum, Avalanche, Kava, Polka, TRON, EOS, Algorand, and Solana blockchains.  
  
Tether also issues tokens pegged to the euro, the offshore Chinese yuan, the Mexican peso, and gold, none with more than a fraction of the market cap of its U.S. dollar-pegged USDT tokens.

### How Pegged Currencies Maintain Stability

Pegged currencies are typically backed by reserves of the currency they are pegged to. A number of fiat currencies are [pegged to the U.S. dollar](https://www.investopedia.com/articles/forex/061015/top-exchange-rates-pegged-us-dollar.asp), including those of Panama and Saudi Arabia. This protects the currencies from extreme fluctuations in value, as their trading values move with the USD.

The same price stability underlies pegged cryptocurrency.

## Exploring Tether's Financial Transparency

Tether provides daily updates of its reserves breakdown on its website. As of March 3, 2024, it reported assets of $99.45 billion for USDT. The company reported holding 84.58% of its reserves in cash, cash equivalents, short-term deposits, and commercial paper; 76.87% of this was in U.S. Treasury bills.

Additionally, it held 0.05% in corporate bonds, 3.62% in precious metals, 2.91% in bitcoin, 4.95% in secured loans, and 3.89% in other investments.

> **Important**
>
> While Tether claims to back each USDT with an equal amount of currency, the figures above reveal this isn't fully accurate. However, it has usually honored its 1-to-1 commitment.

### The Role of Stabilization in Tether's Popularity

Stable value [makes stablecoins appealing](https://www.investopedia.com/stablecoins-and-us-dollar-dominance-11772153) for use as a medium of exchange, similar to traditional money.

In practical terms, stablecoins have made it easier to speculate in cryptocurrency markets. Their rapid growth in popularity is also the result of stablecoins' use as collateral by [decentralized finance](https://www.investopedia.com/decentralized-finance-defi-5113835) (deFi) lending and staking protocols.

## A Brief History of Tether

In November 2017, Tether reported a theft of $31 million in USDT tokens. The company implemented a hard fork, a security technique that involves splitting a blockchain into two streams.

At that time, the company faced questions about its reserves and struggled with accessing banking services, as investigations later confirmed.

### Tether's Legal Challenges in 2019

In April 2019, New York Attorney General Letitia James obtained a court order enjoining Tether and BitFinex parent iFinex from further violations of New York law. It had been determined that BitFinex had borrowed at least $700 million from Tether's reserves to offset BitFinex corporate and client funds frozen (and ultimately seized) from its Panamanian banking partner Crypto Capital Corp. in a money-laundering probe.  

> **Fast Fact**
>
> Tether is a member of the Blockchain Alliance, which promotes legal and developmental uses of blockchain.

### Tether and BitFinex Legal Settlements in 2021

In February 2021, Tether and BitFinex settled the case by agreeing to pay a fine of $18.5 million, discontinue trading with any New York state residents or entities, and furnish information about its reserves to the New York Attorney General's office for the next two years.

In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) announced that Tether agreed to pay a $41 million fine "over claims that Tether stablecoin was fully backed by U.S. dollars." In fact, "Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," according to CFTC. Bitfinex agreed to pay a $1.5 million fine to settle separate CFTC allegations as part of the settlement.

### Tether's Price Volatility and Expansions in 2022

In May 2022, Tether's price briefly fell to as little as $0.96 following the TerraUSD ([UST](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ustusd)) peg loss, even though it wasn't an issuer affiliated with Tether or BitFinex. The price of Tether tokens quickly rebounded to more than $0.99, and Tether said it was continuing to honor redemption requests at a 1-to-1 ratio to the U.S. dollar.

Tether also launched MXNT, a stablecoin backed by the Mexican peso following earlier expansions into Europe (EURT) and China (CNHT).

### Tether's Innovations and Legal Settlements in 2023

In 2023, Tether expanded into artificial intelligence by acquiring Northern Data Group. It appointed a new CEO—Paolo Ardoino, its former chief technology officer and a staunch cryptocurrency and blockchain financial solutions advocate.

The same year, a lengthy lawsuit against Tether and Bitfinex was finally concluded following Judge Laura Swain's dismissal of the claims in November 2023.

The company also continued participating in several measures to enhance cryptocurrency security, educate users and legislators, and cooperate with law enforcement agencies.

## How Does USDT Differ From Other Cryptocurrencies?

USDT is a pegged cryptocurrency, meaning its value is only as volatile as that of the U.S. dollar. Other examples are USD Coin (USDC), Binance USD (BUSD), and Dai (DAI).  
One of the benefits of tethering is that it allows investors to easily move money between cryptocurrency markets and the traditional financial system. They don't have to wait out steep declines in trading values. 

## How Can I Buy USDT?

Tether tokens can be bought and sold on [cryptocurrency exchanges](https://www.investopedia.com/best-crypto-exchanges-5071855), including Binance, CoinSpot, Bitfinex, and [Kraken](https://www.investopedia.com/terms/b/bitcoin-exchange.asp). Some online brokerages also offer cryptocurrencies.

## Is Tether the Biggest Stablecoin?

Yes. Tether was the first and is the best-known stablecoin in the crypto world. The company had a market capitalization of nearly $99 billion as of March 2024.

## The Bottom Line

[Tether is a cryptocurrency](https://www.investopedia.com/the-cryptocurrency-criminals-are-turning-to-8771622) that attempts to maintain a value peg to an underlying currency such as the dollar or euro. It does this by keeping enough actual currency or equivalents in reserves that the cryptocurrency holds the same value as the fiat currency.

Tether is mainly used to convert cryptocurrencies into fiat to prevent slippage, which is a drop in value during transactions. However, there are times when it isn't exactly pegged to the fiat currency it is supposed to be tracking. For instance, when the exchange FTX collapsed in November 2022, Tether plummeted to nearly $0.995 but rebounded quickly, at times seeing more than a 1-to-1 peg.  

_The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [](https://www.google.com/url?q=https://www.investopedia.com/legal-4768893%23toc-warranty-and-liability-disclaimer&sa=D&source=editors&ust=1709493773782823&usg=AOvVaw2iEMZN3DK0kBIBospS9CuW)[warranty and liability disclaimer](https://www.google.com/url?q=https://www.investopedia.com/legal-4768893%23toc-warranty-and-liability-disclaimer&sa=D&source=editors&ust=1709493773783098&usg=AOvVaw1i9wN9P7_KEu6Bi8MAFfTN) for more info. As of the date this article was written, the author does not own cryptocurrency._  

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