The essentials
- USDT is a token issued by Tether that aims to stay worth one US dollar.
- It is mainly used on crypto exchanges as a stand-in for dollars.
- Unlike bank deposits, it has no government deposit protection.
The basics
USDT, also called Tether, is a stablecoin: a crypto token designed to keep a steady value, in this case one US dollar. Tether issues new tokens when approved customers deposit dollars and cancels them when tokens are redeemed. The company reports reserves, mostly short-term US Treasury bills, that it says back the tokens in circulation.
What it is used for
On crypto exchanges, USDT works like cash in a brokerage account. Traders sell bitcoin for USDT rather than dollars because it moves between exchanges quickly and can be held on blockchains without a bank account. It is also used for cross-border payments in some countries.
Compared with cash and money market funds
| Bank deposit | Money market fund | USDT | |
|---|---|---|---|
| Issuer | Regulated bank | Regulated fund | Private company |
| Pays interest to holder | Often | Yes | No |
| Government protection | Deposit insurance up to a limit | No, but tightly regulated | No |
| Available | Banking hours for transfers | Dealing days | 24/7 on blockchains |
Note that the interest earned on USDT's reserves goes to the issuer, not to holders.
Risks
- Its value depends on the issuer's reserves and ability to redeem.
- It has briefly traded below $1 during market stress.
- Tokens can be frozen by the issuer, and transfers sent on the wrong blockchain network may be lost.
- Requests to pay in USDT are common in investment scams.
Reader questions
Can I earn interest on USDT?
Some platforms offer yields on stablecoins by lending them out. That adds platform and counterparty risk; several such lenders have failed.
Is USDT regulated?
Rules vary by country. Some jurisdictions, such as the EU under MiCA, now set requirements for stablecoin issuers and the platforms that offer them.
Sources
- Tether transparency reports
- European Union Markets in Crypto-Assets Regulation (MiCA)