Since its launch, Tether (USDT) has been controversial in the crypto world. It serves as a stabilizing asset in the otherwise volatile cryptocurrency market because it is linked to the US dollar. Although many investors are skeptical about its long-term viability due to concerns over its backing, transparency, and role in market manipulation. Is Tether a good long-term investment? Here are the details.
What is Tether (USDT)?
With its 2014 launch, Tether has maintained a 1:1 dollar-to-Tether ratio, which means for every USDT in circulation, there should be equivalent US dollars in reserve. With a stable fiat currency, other cryptocurrencies like Bitcoin and Ethereum are more stable and less volatile.
How Does Tether Work?
According to the company, Tether’s currency reserves are equal to or greater than the total number of USDT in circulation, which proves the stability of USDT.
Thus, the company claims it owns one dollar for each Tether token in circulation in cash or cash equivalents, such as short-term bonds or time deposits.
Each day, Tether publishes reports on its website showing how many USDT tokens are outstanding and how many reserves there are.
As a result of allegations and controversy surrounding Tether’s reserves, the New York Attorney General and the Commodity Futures Trading Commission are conducting investigations.
There are a number of major crypto exchanges where investors can purchase Tether. To ensure the dollar-to-Tether peg, you would receive approximately 100 USDT tokens for every $100 you invest in Tether, and the company would boost its reserves by $100.
After a user redeems a Tether token for fiat currency, the tokens are destroyed and removed from circulation.
Rather than having its own blockchain, Tether uses third-party blockchains to offer tokens. Currently, USDT tokens are hosted on:
- Ethereum
- Solana
- Tron
- Avalanche
- Algorand
- Polygon
Some Controversies Surrounding Tether:
- Transparency and Backing: Tether’s lack of transparency regarding its backing is one of its major criticisms. To prove that USDT is sufficiently backed by reserves, Tether Limited, the company behind USDT, has not provided regular audits. Despite Tether’s claims about being backed by US dollars, there is a lack of transparency that has raised concerns that it is not.
- Market Manipulation: There are allegations that Tether has been misused in order to manipulate cryptocurrency prices. Those who oppose Tether use it to artificially boost the price of other cryptocurrencies, particularly Bitcoin, by printing it without proper backing. Tether was alleged to be used to manipulate Bitcoin’s price during the 2017 bull run in a study by researchers at the University of Texas.
- Regulatory Scrutiny: Multiple authorities have inspected Tether, including the New York Attorney General. It was accused of concealing a loss of $850 million and misleading investors about USDT’s backing in a lawsuit filed by the New York Attorney General in 2019. It has been reported that Tether paid an $18.5 million fine in response to the lawsuit; however, the incident undermined trust in the stablecoin.
Can You Trust Tether?
Tether has weathered controversies about liquidity and adequacy of reserves while remaining a popular stablecoin among crypto traders.
It was unclear how much the company had in reserve as recently as 2022. Originally, Tether only described its tokens as pegged 1:1 to a fiat currency and backed 100% by Tether’s reserves on its website.
It has not always been clear or consistent for Tether to disclose how the coin is backed, according to Adam Carlton, CEO of crypto wallet Pink Panda.
According to a known crypto firm, its actual reserves are still very opaque and are believed to be constituted mostly of commercial paper originating from unknown sources.
Tether’s lack of collateralization in the crypto market is somewhat accepted by other crypto experts.
Can We Consider Tether as a Long-Term Investment?
Even with the controversies surrounding Tether, there are reasons to consider it as a long-term investment:
- Stability: Tether offers the highest level of stability of any stablecoin when pegged to the US dollar. When it comes to investing in cryptocurrency, holding Tether can be a safer option since it can reduce the volatility of the market.
- Liquidity: Tether can be purchased on the majority of cryptocurrency exchanges and platforms, making it one of the most liquid cryptocurrencies. Due to this, USDT can be bought, sold, or traded easily without experiencing significant price fluctuations.
- Utility: Tether bridges the gap between fiat currency and cryptocurrency, enabling users to move money between traditional banking systems and cryptocurrencies quickly and easily. Over time, it will drive adoption and demand due to its utility as a means of transferring value.
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- How to Start Crypto Trading in India
So, that’s all we have for you on whether or not you should choose Tether (USDT) as a long term investment. It’s our hope that this guide has helped you. For more crypto world trends, follow us on our social media handles and subscribe to our YouTube Channel.
