Monday, January 30, 2023
  • Tether is a “stablecoin”, which refers to a digital currency whose value is directly tied to tangible world assets such as valuable minerals(gold and diamonds) or even fiat currency to stabilize its price
  • The blockchain-based cryptocurrency allows users to deposit fiat currency and converts it to the corresponding digital currency amount, with the main goal being to interchange $1-1 stablecoin(USDT)
  • “Any sudden loss in Tether could entirely result in a severe liquidity shock to the crypto world”

The African crypto market has made a buzz in the headlines these days. It has attracted much attention from big league companies such as Ethereum and Bitcoin, which aim to benefit from it.

You probably have heard a thing or two about bitcoin or even Ethereum, but what about Tether, the third largest cryptocurrency? If not, then worry no more today. We will be expounding more on digital currency and why it is referred to as a stablecoin.

What is Tether USDT?

Tether is today’s third-largest cryptocurrency, commonly referred to as a stablecoin. The term “stablecoin” refers to a digital currency whose value is directly tied to tangible world assets such as valuable minerals(gold and diamonds) or even fiat currency to stabilize its price. This factor has made it very popular within the African crypto market.

Brock Pierce, Reeve Collins, and Craig Sellars were the geniuses behind Tether. In 2014 the digital currency officially launched after changing its name from Realcoin. The main aim behind the third largest cryptocurrency was to stabilize the value of digital currencies.

While other cryptocurrencies are well known for their volatile nature, the stablecoin was designed with the primary purpose of pegging the dollar. Hence, most of the time, Tether’s value is $1.

stablecoin

The stablecoin brings about a new crypto concept.[Photo/SwissBord]

Also, Read Ethereum 2.0 provides cheap and fast crypto mining techniques

The stablecoin is usually used within Africa’s crypto market to purchase other cryptocurrencies since its nature avoids volatility; it is often considered a less risky investment and provides liquidity in the volatile crypto market.

How the third largest cryptocurrency works

Tether is a cryptocurrency that functions and prosers in multiple blockchain networks. The blockchain-based cryptocurrency allows users to deposit fiat currency and converts it to the corresponding digital currency amount. The main goal of Tether is to interchange $1 to 1 stablecoin(USDT). So to acquire 100USDT, you need to have $100 in your reserves, ensuring each user gets their money’s worth.

Although there have been various controversies suggesting various complications to Tether’s coin value, you should keep it in mind because of the stablecoins nature; it isn’t an ideal investment venture like other cryptocurrencies. Instead, Tether is perfect when making a money transfer quickly.

Unique Advantages of Tether USDT

Tether has offered something that most cryptocurrencies have yet to achieve. The main disadvantage within Africa’s crypto market is digital currency volatility. A digital currency might skyrocket just like recent trends, but there are times when the prices are exceptionally lower, and there is no guarantee that it will ever rise. The third largest cryptocurrency allows crypto traders to limit their risk of exposure to such scenarios.

Also, Read Polygon Network: A hub for promoting decentralized finance.

The stablecoin also offers various features that crypto traders can use in crypto to crypto trading. The best part is that it provides multiple kinds of fiat to crypto conversion. This means that all you need to do is add money to your Tether reserves, which will do the rest. It also offers lower transaction costs usually found in banks or financial institutions while increasing speed.

In addition, facilitating and supporting cross-border payments gave rise to the third largest cryptocurrency. 

Controversies surrounding the stablecoin

Since Tether is a stablecoin, numerous claims and allegations have raised various issues. In one scenario, there were claims that Tether introduced the stablecoin to the crypto space through artificial means. This created the liquidity that resulted in Bitcoin’s bull run to US $20,000. 

In 2019, the third largest cryptocurrency, Bitfinex, received various legal issues. New York Attorney General, Letitia James, sued bot companies with claims that in 2018 Bitfiniex lost $850 million mysteriously and used Tether’s reserves($700 million) to cover it up. Although both companies denied the allegations, Tether paid a fine of $18.5 million.

There is also numerous speculation about Tether’s value system. Many investors and crypto traders have questioned the 1 TO 1 Tether-USD conversion. They have claimed that this fact is inaccurate. In 2019 Tether’s lawyers argued that 74% of stablecoins were backed up by cash or cash equivalent.

However, when Tether publicly announced its reserve break down, it backed up only 2.9% of its digital currency with money. The rest consisted of secure loans, corporate bonds and commercial paper.

This generally puts Tether at the top 10 list of biggest holders of commercial owners. It was essentially stating that Tether is a Traditional money-market institution without regulations. This has raised concerns, and others even claim that Tether exists to manipulate bitcoin prices. An analyst, JPMorgan, further warned that any sudden loss in Tether could entirely result in a severe liquidity shock to the crypto world.

Is Tether USDT a good or bad investment in Africa’s crypto market?

Tether has grown in Africa’s crypto market but not as an investment. The nature of digital currency makes it useful for transactions or storing value and is mainly a tool for business.

According to Bumbera, Tether is mainly helpful if you want to avoid all the hectic workload that ordinary bank transfers have or if you want to avoid volatility risks that come with crypto.

The best thing about Tether is its lack of active competitors compared to other digital currencies. The downside is if Tether loses its value one day, it will cause massive speculations to anyone who has vastly invested in Tether.

Despite this, Tether has remained the third largest cryptocurrency and shows no sign of slowing down. One might consider it as ‘too big to fail. It generally is suitable for transactions and to promote businesses within the crypto space through its transactions. 

Whether or not you decide to invest in Tether is a personal decision. With the current rate of crypto adoption in Africa, it won’t hurt to start using Tether.

Read: Africa: stablecoins offer an efficient solution for cross-border remittances

 

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