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What is the true value of USDT? Understanding the foundation of the cryptocurrency market through Tether (including the meaning of Tether)
What is Tether? Understanding Its Essence
In the cryptocurrency market, there exists a currency that plays a special role. That is USDT. Also known as Tether (issued by Tether Limited), this digital asset is a representative of “stablecoins,” holding over 60% of the entire market share.
To put the meaning of Tether in a word, it can be described as a bridge currency that realizes the value of the US dollar in the form of a cryptocurrency. Unlike the sharp price fluctuations seen in Bitcoin or Ethereum, it is designed to maintain a stable value fixed 1:1 to the US dollar.
The Role and Classification of Stablecoins
Before understanding Tether, it is important to grasp the significance of the category of stablecoins.
Reasons why stablecoins are needed:
Stablecoins are classified into four types based on their underlying mechanisms:
Among these, Tether is a fiat-collateralized stablecoin that has established a dominant position in the market.
The History of USDT: From a Single Project to Market Mainstream
The development of USDT symbolizes the maturation of the entire cryptocurrency market.
Major milestones:
As of 2025, USDT still records the largest market capitalization and trading volume among stablecoins, with issuance continuing to grow.
The Mechanism Behind USDT’s Price Stability: The Secret to Maintaining 1 Dollar
The Peg (Fixed Exchange Rate) System
The reason USDT consistently trades near 1 dollar lies in its market mechanism.
Issuance and redemption cycle:
When the market price falls below 1 dollar: theoretically, buying undervalued USDT and returning it to Tether to get 1 dollar creates buying pressure (arbitrage). Conversely, if it exceeds 1 dollar, users can deposit dollars to Tether and receive new USDT to sell in the market.
This arbitrage mechanism helps USDT maintain a long-term level close to 1 dollar.
The Reality of Reserves: Diversified Asset Composition
Initially, Tether claimed to hold “100% USD cash,” but now its reserve composition is more complex.
Current reserve allocation:
Recently, the proportion of US Treasuries and gold has increased. Transparency is being enhanced through quarterly audit reports, but doubts about “full backing” remain unresolved.
In the past, Tether faced investigations by the New York Attorney General and fines from the CFTC. However, the company plans to introduce real-time reserve reporting systems, showing a move toward greater transparency.
Expanding Convenience Through Multi-Chain Support
A key feature of USDT is that it is not limited to a single blockchain but is deployed across multiple networks.
Major networks and their characteristics:
Omni Layer (Bitcoin-based)
ERC-20 (Ethereum)
TRC-20 (Tron)
Solana
Other networks: Avalanche, BNB Chain, Polygon, Base, Arbitrum, etc.
Each network has its own advantages and disadvantages. It is crucial to confirm the supported network before sending funds, as sending on an unsupported network may result in loss of assets.
Practical Roles of USDT in the Cryptocurrency Market
As a Core Liquidity Provider on Exchanges
USDT pairs are available for almost all major cryptocurrencies, enabling direct trading without converting to fiat. The fact that USDT trading volume surpasses Bitcoin’s highlights its importance in the market.
Asset Preservation
In downturns, shifting funds temporarily into USDT helps prevent value loss. While waiting for market recovery, assets can be held with maintained liquidity.
Innovation in International Remittances and Payments
Traditional bank international transfers take days and can incur fees of 5–7% of the transfer amount. USDT transfers, on the other hand:
This offers an innovative solution for remittances in regions with underdeveloped financial infrastructure.
Use in DeFi Ecosystems
In DEXs like Uniswap and SushiSwap, USDT is central to liquidity pools, and in lending protocols like Aave and Compound, it functions as collateral and interest-bearing asset. Its price stability makes it popular for relatively low-risk yield farming.
Why USDT Continues to Be Market’s Choice: Its Advantages
Price stability: Pegged to USD, minimizes fluctuations, facilitating asset planning and value preservation.
Exceptional liquidity: Largest market cap among stablecoins, functioning as a base currency on nearly all exchanges.
Efficiency in international transactions: Faster and cheaper than traditional bank remittances.
Universal compatibility: Supported across many DeFi protocols and wallets, enabling broad use cases.
Growing commercial adoption: Its stability is increasingly used for payments of goods and services, functioning as a de facto payment method in regions with underdeveloped financial infrastructure.
Risks and Challenges of USDT: What You Should Know
Centralized management: Tether Limited’s control allows for token freezing at specific addresses, which conflicts with the original “censorship resistance” ethos of cryptocurrencies.
Regulatory uncertainty: Regulations on stablecoins are evolving worldwide. Strict regulations could impact USDT operations.
Transparency and reserve doubts: Long-standing lack of independent audits raises questions about actual reserves. The shift from “100% dollar backing” to diversified reserves also fuels transparency concerns.
Considering these risks, diversification with other stablecoins like USDC or DAI is recommended as part of a balanced portfolio.
Comparative Analysis of Major Stablecoins
Selection guidelines:
Future Outlook and Market Position of USDT
Growth Potential in Global Remittance Markets
USDT could serve as a means of financial inclusion in regions with limited banking infrastructure, especially for migrant workers’ remittances. According to World Bank data, traditional remittance fees average around 6%. USDT often achieves below 1%, giving it a significant advantage in small-value remittance markets.
It also offers benefits for SMEs in international trade, providing quick and low-cost settlement options.
Coexistence with Traditional Financial Systems
As central banks develop CBDCs, USDT is expected to coexist due to:
If regulatory frameworks are established, USDT’s legal status will be clarified, further boosting institutional and corporate trust and accelerating adoption.
Blockchain Technology Advancements
Emerging faster and cheaper blockchain platforms will enhance USDT’s scalability and support expansion. Increased use cases for USD on new platforms are anticipated, broadening its application scope.
With ongoing development in DeFi, USDT is expected to maintain its position as a foundational currency for new financial protocols.
Frequently Asked Questions
Q. What is the fundamental difference between USDT and US dollar (USD)?
USD is a fiat currency managed by the US government, while USDT is a cryptocurrency issued by Tether Limited. Their legal recognition differs by jurisdiction. USDT mimics the dollar’s value digitally and depends on the issuer’s credibility.
Q. How can I securely store USDT?
Hardware wallets (Ledger, Trezor) are the safest, as private keys are stored offline, minimizing hacking risks. If using software wallets (Trust Wallet, MetaMask), ensure device security. Keep recovery phrases offline in secure locations and avoid digital storage.
Q. How is USDT taxed in Japan?
Profits from USDT and other cryptocurrencies are generally treated as “miscellaneous income.” Taxable events include exchanges for fiat or other cryptos, and purchases of goods/services. Tax rates are progressive (5%–45%). Maintaining detailed transaction records and consulting a tax professional is recommended.
Summary: The Core Role of Tether in the Cryptocurrency Market
Tether (USDT) is not just a “digital dollar,” but a crucial foundational currency connecting traditional finance and the crypto ecosystem.
Key points:
USDT continues to function as a tool for mitigating price volatility and bridging traditional finance with crypto. To reduce risks associated with centralized control, diversification with other stablecoins like USDC or DAI is advisable.
Monitoring market trends and regulatory changes is essential for selecting suitable stablecoins. Progress in transparency and regulation will be key factors influencing USDT’s future growth.