What Is Tether and Is It a Good Investment?
Cryptocurrency is constantly in the news as well-known financial institutions and companies add Bitcoin to their balance sheets. In recent times, the less volatile assets within cryptocurrency — stablecoins — are also making their way onto investors’ radars. The largest stablecoin by market capitalization is Tether (USDT).
What Is Tether?
Tether is a blockchain-based cryptocurrency that is backed by the U.S. dollar. This means there are actual dollars in reserves at financial institutions to serve as collateral. Stablecoins, when fully backed by the dollar, have a 1:1 relationship with USD. You can expect stablecoin prices to stay stable, as the name suggests, unlike popular cryptocurrency counterparts Bitcoin and Ethereum.
Understanding Stablecoins
The stablecoin sector aims to avoid volatility and allow cryptocurrency to be a store of value rather than a risky investment. Stablecoins also provide liquidity in a volatile cryptocurrency market where it would be hard to convert back and forth between cash and a cryptocurrency like Bitcoin.
The most well-known stablecoins are the USD-backed cryptocurrencies like Tether, Gemini Dollar and USD Coin. However, other stablecoins use other types of collateral. Some are backed using fiat currencies, like the euro or yen, and others are backed by commodities, such as gold and silver.
Despite the 1:1 ratio of the popular USD stablecoins, there are typically minor fluctuations in the price of stablecoins. Most of the time, you’ll find that stablecoin values can have a difference of 1 to 3 cents. This is largely due to changes in liquidity and supply and demand, which are driven higher or lower by transactions, trading volume and market volatility.
It is important to keep in mind that some companies are less transparent than others about how much of their stablecoin is actually backed by fiat currency and commodities. Tether itself has been embroiled in controversy over its false claims and lack of full backing.
History of Tether and Controversy
Tether began as Realcoin in 2014, and the first tokens were distributed in 2015 on the Bitcoin network. It was one of the earliest cryptocurrencies and one of the first successful stablecoins. Not only was it technologically revolutionary, but it also had a roster of reputable founders, including Bitcoin Foundation director Brock Pierce.
However, as quickly as it rose to success, skepticism and controversy followed, which is unsurprising considering the amount of scrutiny the coin received as the first popular stablecoin. Tether has had to get past a few controversies to maintain its position at the top:
Despite the controversies, new Tether tokens continue being minted as demand continues to increase. As of Jan. 17, the market cap of USDT is $78.426 billion, up from $24.295 billion on Jan. 17, 2021.
What To Consider Before Investing In Tether
Tether can be bought on most major cryptocurrency exchanges, but should you invest, considering its history and outlook? Tether, despite having many issues in the past, continues to be a very stable cryptocurrency that is stronger for having gotten past its problems mostly unscathed — thus far, at least.
Although competitors have popped up over the years, Tether is still the largest stablecoin and widely used for trading, loans and earning interest. Tether could potentially be viewed as one of the riskier cryptocurrencies due mainly to its issues with transparency, but it’s still very important in the cryptocurrency world.
Where To Buy Tether and Earn High Interest Rates
You can buy tether on many major cryptocurrency exchanges and lending platforms. Many will pay anywhere from 6% to 12% in interest just for storing Tether on their platform. Tether will typically earn more interest than other popular stablecoins like GUSD, USDC and DAI because of its high demand in trading and cryptocurrency loans.
Likewise, you might be able to ask for higher interest rates for Tether on KuCoin, a cryptocurrency-based peer-to-peer lending platform. In fact, it is the cryptocurrency that commands the highest interest rates by far compared against GUSD, USDC, Bitcoin and Ethereum.
Whether or not you choose to invest, make sure you understand tax laws around cryptocurrency. Income in the form of cryptocurrency can be taxed, whether earned as interest or capital gains.
Below are some platforms and their Tether interest rates.
Platform | USDT APY |
|---|---|
BlockFi | 9.50% |
Celsius | 8.50% |
Nexo | 12% |
Youhodler | 12.3% |
Binance | 10% |
Is Tether a Good Investment?
With the creation of Tether and other stablecoins, it is quick and easy to swap any cryptocurrency for Tether, while converting a cryptocurrency to cash would take days and cost transaction fees. This creates liquidity for exchange platforms, creates no-cost exit strategies for investors and adds flexibility and stability to investors’ portfolios.
Additionally, Tether can be sent anywhere globally much more quickly and with lower fees than transfers at traditional banks and financial institutions. While most people wouldn’t use Bitcoin or Ethereum for purchases and daily transactions due to their high volatility, it makes perfect sense to use Tether.
For these reasons and more, it is still worthwhile to consider investing in Tether. While Tether is not necessarily a long-term investment that will grow your money by itself because it stays pegged to the U.S. dollar, there are lending platforms, exchanges and wallets that will pay you high interest rates to store USDT on their platform.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Jan. 17, 2022, and subject to change.
This article originally appeared on GOBankingRates.com: What Is Tether and Is It a Good Investment?
