HK

What is Tether (USDT)?

2025-08-04

Tether (USDT) is a widely used "stablecoin" in the global cryptocurrency market, designed to reduce the impact of price volatility on investors by pegging its value to fiat currencies such as the US dollar. This article will objectively analyze the basic principles, functions, and potential risks of USDT to help investors gain a comprehensive understanding of this tool.

I. Basic Definition and Operation Mechanism of USDT

  1. Core Logic of Stablecoins USDT is a "fiat-collateralized stablecoin," and its issuer, Tether Limited, claims that each USDT in circulation is backed 1:1 by US dollar reserves. For example, if there are 10 billion USDT in the market, Tether should hold an equivalent of 10 billion US dollars in cash or cash equivalents.
  2. Technical Implementation USDT was initially built on the Bitcoin blockchain (Omni Protocol) but has since expanded to multiple public chains such as Ethereum and TRON, supporting formats like ERC-20 and TRC-20 to meet diverse trading needs.
  3. Primary Use CasesHedging Tool: Investors can convert crypto assets into USDT during market volatility to avoid drastic value fluctuations.Trading Medium: Many exchanges use USDT as a benchmark trading pair (e.g., BTC/USDT) to enhance liquidity.Cross-Border Transfers: Some users utilize USDT for fast and low-cost international fund transfers.
    1. Hedging Tool: Investors can convert crypto assets into USDT during market volatility to avoid drastic value fluctuations.
    2. Trading Medium: Many exchanges use USDT as a benchmark trading pair (e.g., BTC/USDT) to enhance liquidity.
    3. Cross-Border Transfers: Some users utilize USDT for fast and low-cost international fund transfers.

II. Advantages and Controversies of USDT

  1. Market Position As of 2023, USDT accounts for over 60% of the total stablecoin market capitalization, making it one of the most liquid stablecoins in the crypto ecosystem.
  2. Transparency Controversies Tether has long faced skepticism over the lack of public audits for its reserve assets. Although it regularly publishes reserve composition reports (including cash, commercial papers, etc.), the absence of third-party independent audits has raised concerns among some investors.
  3. Regulatory Risks Global regulatory scrutiny on stablecoin compliance is intensifying, and Tether's ability to operate compliantly may impact its long-term stability.

III. Precautions When Using USDT

  1. Not a Risk-Free Asset Although USDT is designed to be "1:1 pegged to the US dollar," its value still relies on the issuer's ability to redeem. Insufficient reserves or extreme redemption pressures could lead to depegging risks.
  2. Choose Compliant Trading Platforms Investors should trade USDT through licensed exchanges to mitigate fund security risks and strictly adhere to local regulations.
  3. Avoid Over-Reliance on a Single Asset It is recommended to use USDT as a short-term hedging tool or trading medium rather than a long-term store of value, while diversifying into other compliant assets.

IV. Conclusion

As a foundational infrastructure in the crypto market, USDT provides investors with a practical tool to reduce volatility risks. However, its centralized issuance mechanism and regulatory uncertainties require careful evaluation. Users should monitor Tether's transparency progress and develop strategies based on their risk tolerance.

Disclaimer:

This material is for general information purposes only. It does not constitute, nor should be interpreted as, any form of solicitation, offer or recommendation of any product or service. It does not constitute investment, tax or legal advice. In no event should any news release be considered as recommendation of a particular type of digital asset.

This material may include market data prepared by HashKey Exchange or data from third party sources. While HashKey Exchange makes reasonable efforts to ensure the reliability of such third-party information, such information may have not been verified. Graphics are for reference only. We make no representation or warranty, express or implied, to the timeliness, accuracy or completeness of the information in this material. Information may become outdated, including as a result of new plans, regulations or changes in the market. In making investment decisions, investors should not solely rely on the information contained in this material. The risk of loss in trading digital assets can be substantial and is not suitable for all investors.

Any forward-looking statements in this material is subject to several conditions, uncertainties and assumptions. We undertake no obligation to update or revise any forward-looking statements.

The English version shall prevail if there is any inconsistency between the English and Chinese versions.