What is Tether? How does Tether work?

Tether: A stable currency pegged to the U.S. dollar

Tether (USDT) is a stable currency issued by Tether Limited, its value is pegged to the U.S. dollar . Its original design is to provide the cryptocurrency market with an asset with stable value to help traders and investors avoid the risk of price fluctuations in the cryptocurrency market.

How it works

Tether is a stablecoin that works by maintaining a 1:1 reserve ratio with the U.S. dollar. This means that Tether Limited, the issuing company of Tether, holds U.S. dollar reserves equal to the value of the Tether it issues. When the market price of Tether is higher than $1, Tether Limited will increase the amount of Tether issued to meet market demand, which will cause the price of Tether to fall. On the contrary, when the market price of Tether is below $1, Tether Limited will conduct a repurchase operation of Tether to reduce the supply and thereby push up the price. This mechanism is designed to maintain the stability of Tether, keeping its price at a fixed 1:1 ratio to the US dollar.

The purpose of this mechanism is to ensure that the price of Tether remains stable and establish it as a reliable asset that can be used for trading, storing value, and risk hedging. Tether is commonly used for transfers between cryptocurrency exchanges and is also used for arbitrage trading in the cryptocurrency market.

Advantages

• Pegged to the US dollar, providing price stability
• Low transaction fees, suitable for large transfers
• In cryptocurrency exchanges Widely accepted
• Can be used as a safe-haven asset, providing protection during market volatility

Disadvantages

• Tether Limited has limited transparency into its reserves
• Links to fiat currencies may be subject to regulatory challenges
• The supply of Tether is not controlled by any algorithm or consensus mechanism, but is centrally controlled by Tether Limited

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