Understanding Tether's Peg and Reserves
During periods of market volatility, users (and critics) discuss the mechanisms behind how Tether maintains the stability of USD₮ and the nature of its reserves more frequently. Tether was recently tested by market volatility and over $10 billion dollars in redemptions. The results proved that Tether is the most resilient company in crypto and in traditional finance.
A question for Tether's critics: Which bank is able to process withdrawals for 10% of their total assets within 48hrs? A feat Tether was able to do effortlessly, and which was nowhere near its capacity.
This article will explore the nature of Tethers peg and updates to its reserves.
How Tether Maintains Stability
In the aftermath of Terra/Luna’s dramatic collapse, stablecoins have fallen under a new wave of scrutiny from investors, and critics. The basic premise of a stablecoin is that each coin is redeemable for a fixed value which is almost always tied to a fiat currency. USD₮ has always been redeemable 1-for-1 for dollars- 1 USD₮ = 1$.
Given the fact that Terra lost its peg, it’s natural that investors might have questions about what stops USD₮ from facing a similar fate.
First, it’s crucial to understand Terra and USD₮ utilize completely different designs, mechanisms, and collateral. Terra was an algorithmic stablecoin that at the end of the day was not fully collateralized. It has a number of mechanisms designed to achieve stability, but ultimately those failed.
USD₮ is, quite simply, fully backed by collateral. It has maintained its peg because every USD₮ is redeemable for dollars via Tether, and as such any time the price goes below $1 investors can earn a profit by buying USD₮ for a discount and redeeming it with Tether.
Tether recently redeemed over $10 billion in redemption requests using the collateral which fully backs USD₮.
Exchange Pricing vs Redemption Facilities
Most commentators and investors use the current trading price for USD₮ that is quoted on exchanges like Binance, FTX, Kraken, and others. On these exchanges, users can see what the current market price of USD₮ is. During periods of intense market volatility USD₮’s price on these exchanges may go below or above $1.
This does not mean USD₮ has broken its peg.
It only signifies that there is more demand for liquidity than exists on that exchange's order books.
Tether has over $70 billion dollars of collateral which it can redeem USD₮ against. No exchange’s order book has anything remotely resembling that amount of liquidity. As such, a few billion dollars of demand to exchange USD₮ for dollars can easily exceed the availability of liquidity on an exchange (causing a change in the price of USD₮ on that exchange)- but will not exceed Tether’s redemption facilities or change the price Tether redeems USD₮ for.
Ultimately, USD₮ maintains its peg because of Tether’s redemption facility for USD₮ and the collateral behind it, not because the price of USD₮ generally trades at 1$ on exchanges. In fact, USD₮ generally trades at $1 on exchanges because investors know Tether’s redemption facility is reliable. Tether has never turned down a redemption requisition for USD₮.
Some critics have tried to suggest that Tether processing $10 billion dollars in redemptions is a sign of weakness, but what it actually shows is that Tether is able to redeem a request for over 10% of outstanding USD₮ tokens within days.
Almost no bank in the world would be able to process a withdrawal request for 10% of their assets within the same time frame, much less a few days.
Tether’s ability to redeem $10 billion is a real-time demonstration of its strength, and the confidence the larger crypto ecosystem has in USD₮.
Outside of discussion around the peg, it’s common that during periods of volatility people discuss (and critique Tether’s reserves).
Tether has released multiple assurance opinions which show the makeup of Tether’s reserves. The vast majority of USD₮ reserves are cash and common cash equivalents.
In Tether’s latest assurance opinion, Tether announced that over 55% of total USD₮ reserves are now US Treasuries and that commercial paper now makes up less than 29% of USD₮’s backing.
While both commercial paper and treasury reserves are commonly held cash equivalents, US treasuries now make up a much larger percentage of Tether’s reserves.
However, Tether is committed to further reducing commercial paper as part of its reserves and increasing its holding of US Treasuries. This will be reflected in future assurance opinions in the coming months.
These announcements are part of Tether’s ongoing commitment to transparency and stability. Tether’s reserves are strong, conservative, and liquid. This is further demonstrated by Tether’s ability to honor $10 billion in redemption requests within days.
USD₮ has been the market leader in the rapidly growing stablecoin sector since its very inception. Tether has navigated multiple black swan events (including the Coronavirus crisis) and many cryptocurrency market drawdowns over 50%. During these events, USD₮ has always maintained its peg and Tether has always processed every redemption request for its verified customers.
While markets may continue to be volatile, USD₮ will not be.
Assurance Opinion Once Again Re-affirms Tether’s Reserves Fully Backed; Reveals Significant Reductions in Commercial Paper and Increase in U.S. Treasury Bills
Today, Tether Holdings Limited made available its latest quarterly assurance opinion demonstrating the strength of its reserves revealing significant reductions in commercial paper investments and an overall increase in U.S. treasury bills. It also demonstrates that the group’s consolidated assets exceed its consolidated liabilities.
It shows a further approximately 17% decrease in its commercial paper holdings over the prior quarter from $24.2B to $20.1B; an action Tether has continued with a further 20% reduction since April 1 2022 and which will be reflected in the Q2 2022 report. The attestation, completed by independent accountants MHA Cayman, re-affirms the accuracy of Tether’s Consolidated Reserves report, which breaks down the assets held by the group as of March 31, 2022:
Consolidated total assets amount to at least US$82,424,821,101.
The consolidated group’s consolidated assets exceed its consolidated liabilities.
The consolidated group’s reserves held for the digital tokens issued exceeds the amount required to redeem the digital tokens issued.
Consolidated assets show a significant average maturity reduction with focus on more short-term assets.
The latest report also shows an increase in the group’s investments in money market funds and U.S. treasury bills, which have gone up from $34.5B to $39.2B, an increase of over 13%. Additionally, the average rating of commercial paper & certificates of deposit has gone up from A-2 to A-1. Secured loans have also gone down by $1B.
You can read the latest assurance opinion and the Consolidated Reserves Report here.
Paolo Ardoino, Tether CTO, said:
“This past week is a clear example of the strength and resilience of Tether. Tether has maintained its stability through multiple black swan events and highly volatile market conditions and, even in its darkest days, Tether has never once failed to honor a redemption request from any of its verified customers. This latest attestation further highlights that Tether is fully backed and that the composition of its reserves is strong, conservative, and liquid. As promised, it demonstrates a commitment by the company to reduce its commercial paper investments and in doing so, led to a rise in its holdings in U.S. Treasury Bills. In fact, since April 1 2022, Tether has seen a further reduction of 20% in commercial paper which we will reflect in the Q2 2022 report. As Tether's growth in the market continues to validate the business, we are pleased to share attestations now, and in the future, as part of our ongoing commitment to transparency.”
For reference: historic statements:
How Tether USD₮ Is Able to Maintain Its Peg When Other Stablecoins Fall
The collapse of Terra (UST) sent shockwaves through the crypto market this week. UST is a high-profile stablecoin that reached a marketcap of $18bn before collapsing 50% within days. LUNA, a cryptocurrency linked to UST and whose mechanism we will explore, collapsed by over 90% within 5 days.
While UST is referred to as a stablecoin, it has nothing in common with collateralized stablecoins like Tether USD₮. UST is an algorithmic stablecoin.
Why is Tether USD₮ More Reliable?
Given the recent losses UST investors suffered, many users may be questioning if they can trust Tether USD₮ given the spectacular collapse of UST.
Thankfully, all one needs to do is look at the history and track record of Tether USD₮.
Tether USD₮ has been relied on as the primary form of dollar-based liquidity in the crypto market for many years and the crypto market has not been without its share of dramatic crashes!
In order to understand the stability of USD₮, it's essential to know the difference between the market pricing of USD₮ on exchanges and the redemption facilities which are always available via Tether.
Since 2015, Tether has never failed to process a redemption request for USD₮ at a value of $1 per USD₮ token. On the open market, USD₮ has almost never deviated from that price as well, although there are a handful of short-lived instances where it did deviate on exchanges like Binance.
When this occurs, it doesn’t mean USD₮ is no longer backed by 1-to-1 with reserves, or that USD₮ peg is lost, or that Tether redemptions are being processed at less than $1 per USD₮. It simply shows that selling pressure on exchanges has exceeded the limited liquidity on that exchange.
Any given exchange will not have enough liquidity on its books to process the exchange of every USD₮ token for dollars. In instances where exchange liquidity is too low, investors come to Tether to request a redemption which is exactly what happened in May.
On May 11th and 12th the price of USD₮ deviated from its typical price of $1 on few exchanges. This caused investors to purchase USD₮ on those exchanges for a discount and then redeem those USD₮ tokens with Tether on a 1-to-1 basis.
Since May 11th Tether successfully processed $7bln of USD₮ redemptions for verified individuals. Every redemption request which was submitted was redeemed in full. The USD₮ peg was respected 1-to-1 with USD. The size of this redemption, managed flawlessly, shows that USD₮ is by far, the most robust stablecoin in the industry. Tether engages in constant risk-management and stress-test scenarios, ensuring it always has at hand, a liquid portfolio of assets to manage redemptions, even in a bank-run scenario.
How Does an Algorithmic Stablecoin Work?
Unlike collateralized stablecoins where each coin is fully backed by collateral, algorithmic stablecoins attempt to maintain their value via various market operations that have frequently failed dramatically. Compared to Tether USD₮, which is always fully backed by reserves, algorithmic stablecoins are highly vulnerable to market volatility.
While different algorithmic stablecoins use different mechanisms to try to achieve price stability, they commonly use some sort of supply adjustment where coins are created or destroyed.
Terra UST used a swap function between UST and LUNA to stabilize the value of UST at $1 for a time.
Terra had an on-chain swap where 1 UST could be exchanged for $1 of LUNA regardless of the price of either asset. Therefore, if the value of UST fell below $1, users were incentivized to swap the UST for LUNA. Additionally, when UST rose above $1 users could swap LUNA for UST where each dollar of LUNA minted 1 UST. During this process, a portion of the LUNA was burned and the remainder was sent to a corporate treasury.
Terra then used this LUNA to incentivize people to create and issue UST by paying out 20% interest on any UST deposited into a protocol they created called Anchor. They also used it to stabilize the price of UST when the peg came under pressure.
The interest that was paid by Anchor was the main incentive that drove the growth of UST as users minted it to earn interest. However, it quickly became known that the only way that Terra was able to pay 20% was by subsidizing the interest with funds from the corporate treasury.
This meant that unless the price of LUNA kept increasing, and users kept minting more and more UST, Terra would be unable to sustain the interest payments which drove users to use UST in the first place.
As soon as the LUNA price started falling, and especially once the marketcap of LUNA fell below the marketcap of UST, the price of both assets started collapsing quickly as LUNA was sold to try to maintain the peg of UST.
Can Algorithmic Stablecoins Work?
The track record of algorithmic stablecoins isn't good. While UST is the most high-profile collapse in recent memory, there are many algorithmic stablecoins that have suffered similar collapses.
These coins have not gone unnoticed, and the University of Calgary published a study in 2021 which demonstrated that these coins are inherently fragile and vulnerable.
“Built to Fail: The Inherent Fragility of Algorithmic Stablecoins” argues that algorithmic stablecoins rely on a consistent minimum level of demand for the coin, independent actors who are incentivized to stabilize the price, and reliable price information at all times without interruption.
As none of these variables are certain and typically deteriorate when prices start falling, the history of algorithmic stablecoins is one of failure and collapse.
Tether believes that the only viable stablecoin model is a fully collateralized stablecoin. Algorithmic stablecoins have a long history of spectacular collapses which have devastated investors and destroyed tremendous capital.
They also damage the overall reputation of the cryptocurrency sector. While the appeal for a decentralized stablecoin is high, history shows that designs for decentralized stablecoins either result in centralization (they end up backed by collateralized stablecoins) or result in abject failure (algorithmic stablecoin collapse).
Tether is proud to uphold its role as a primary provider of dollar-based liquidity to cryptocurrency markets which is always fully collateralized via Tether reserves.
Tether Continues to Honour All Redemptions from Verified Customers During Market Volatility, On Track To Process 2bn Today
Tether is pleased to report that it is business as usual amid some expected market panic following this week’s market movements.
Tether continues to honour redemptions normally, with verified customers (in allowed jurisdictions) able to redeem USDt on Tether.to for USD$1. In the last 24 hours alone, Tether has honoured over 300m USDt redemptions and is already processing more than 2bn today, without issue.
Tether has maintained its stability through multiple black swan events and highly volatile market conditions and even in its darkest days Tether has never once failed to honour a redemption request from any of its verified customers. Tether will continue to do so which has always been its practice.
Tether is the most liquid stablecoin in the market, backed by a strong, conservative portfolio that consists of cash & cash equivalents, such as short-term treasury bills, money market funds, and commercial paper holdings from A-2 and above rated issuers. The value of Tether's reserves is published daily and updated once per day. You can find the most recent information here: https://tether.to/en/transparency
Paolo Ardoino, Tether CTO, said:
“Tether is gratified that the market continues to show its trust and confidence in Tether: the first, largest, and most transparent, innovative, and liquid stablecoin. We are a quickly evolving industry and as an industry we will learn from these events together.”
How Tether Supports the Decentralization of Finance
Cryptocurrencies are the fastest growing technology market of the last decade, there is nothing remotely comparable to the rapid growth experienced by this sector. On the most fundamental level, the growth of cryptocurrencies and blockchain applications has been driven by a belief in the impact that decentralization could have on finance and the world.
No matter where you look, every project in the cryptocurrency world is trying to use decentralization to solve a problem. Some will fail and some will succeed, but there are countless teams that are trying to determine the right approach to decentralization and which problems it can solve.
Tether and USD₮ support the growth and adoption of a decentralized financial system. While USD₮ itself is not a decentralized asset, it solves various core challenges that have supported the growth of decentralized systems and will continue to for years to come.
Integrating Decentralized Infrastructure
Ultimately, decentralized financial systems and infrastructure cannot exist in isolation, at least at this time. Perhaps one day decentralized financial systems will just be known as “The Financial System” but currently users must have the ability to enter and exit the decentralized world.
There are many on-ramps that have grown up around providing users the ability to convert government currencies held in banks into crypto assets, but USD₮ solves a different problem which is equally important to the growth of decentralized financial markets.
USD₮ is a native blockchain asset that is supported on most major blockchains. It is the largest stablecoin in the world and has been the top choice for individuals, traders, and companies for years.
Due to the fact that USD₮ exists on blockchains, it provides a useful tool where users can have the option to exit their positions in digital assets into something which is benchmarked against a dollar value without needing to exit into a bank.
This promotes the ability for money to stay within the growing cryptocurrency market. If a tool like USD₮ was not available, users would need to consistently transfer money out of cryptocurrency markets back into banks. This would add tremendous friction and exert unnecessarily pressure on the ability of users to use decentralized infrastructure as a major part of their lives. It would also open up the avenues for financial censorship!
Supporting Global Markets
Decentralized financial markets need to be truly global. However, every user must onboard into the ecosystem from a local national currency and from a national financial infrastructure (cash, banks, etc).
USD₮ provides users the ability to benchmark their digital wealth against a fiat currency without needing to transfer it to a bank. This promotes the ability for users who build value in a decentralized financial system to keep their value there while maintaining the ability to transact internationally.
In a world where most economic transactions do not utilize Bitcoin or another digital asset, most people still have all of their expenses and purchases accounted for in fiat currency terms. USD₮ provides a way to allow control over how they denominate their value, even while staying within global, decentralized financial infrastructure.
It’s important to the growth of crypto ecosystem that users can utilize decentralized financial infrastructure to transfer fiat value as well as crypto assets.
USD₮ is a critical pillar of liquidity within the crypto ecosystem. The daily trading volume of USD₮ usually far exceeds every other digital asset except Bitcoin. It also trades more tha blue-chip stocks like Apple trade in a day!
It is a remarkable milestone that an asset that is less than a decade old is one of the most liquid assets on the planet.
This liquidity is critical to the growth of the crypto ecosystem. It allows large quantities of digital assets to be easily converted into fiat denominated value. It ensures that large investors and companies can seamlessly onboard into an alternative financial system.
In Order to Build the Future, Integrate the Past
An alternative decentralized financial system stands the best possibility of growth when it is able to interface with the traditional infrastructure and world that most users are used to and that exerts the most direct influence over their lives.
Users are excited about the potential for crypto assets because they see how they can impact their real lives. They provide exciting new opportunities, solve core challenges, and offer people around the world the ability to generate economic value online.
However, it's the ability for this value to bridge back to their local environments that makes the value real for most users. While it's true that one day this may no longer be necessary, the growth of this technology depends on integration.
Due to USD₮’s ability to be redeemed for USD on a 1-1 basis, it is able to function as a placeholder for dollar value on blockchains. Without the ability to represent dollar value on-chain, it's hard to imagine that exchanges, derivatives, and De-Fi could have grown as fast or as large as they have.
Tether is proud of the role it has played in promoting the growth of this highly disruptive industry. If you have more questions about Tether, we encourage you to visit our website to learn more about Tether and how we work. You’ll also find information about how to use USD₮ and on the basics of stablecoins.
What Can We Attribute To The Explosive Growth of Stablecoins?
The rapid and explosive growth of stablecoins has been nothing short of stunning. In less than a decade an entirely new form of capital was created, on emerging technology infrastructure, that grew from nothing to a market cap and total supply which exceeds $130 billion.
Many skeptics have a hard time wrapping their heads around how the supply and backing of stablecoins has exceeded many major bank’s reserves. It’s difficult for those who have not directly experienced the benefits and utility of stablecoins to understand why people all over the world are choosing stablecoins as their primary form of money.
While there are many reasons for the growth of stable digital money, here are four main drivers of USD₮’s growth over the last half decade.
The US dollar is the world’s reserve currency. Around the globe, it is the most highly sought after national currency for a multitude of reasons. Foreign investors which range from individual people storing their wealth to foreign governments like to hold US dollars.
During times of political or economic stability, local currencies can become devalued around the world. We have seen this occur many times in modern history, including in the present day (Venezuela, Zimbabwe, Lebanon).
During periods of inflation, the rational choice is to exit the currency undergoing inflation and purchase assets which are not inflating (or at least not at the same rate). While this commonly can mean people purchase gold, real estate, equities, or other assets; it also can commonly result in investors acquiring US dollars.
Acquiring dollars allows individuals to still hold a highly liquid currency, whereas other less liquid assets would restrict their ability to easily utilize their money to purchase goods and services. However, acquiring US dollars can be difficult in countries which don't have easy access to financial infrastructure that supports dollars.
USD₮ massively simplified the ability for individuals around the world to access a financial instrument which is indexed to the market value of the US Dollar. This is because USD₮ does not require the individual to have access to a formal bank which allows them to hold dollar deposits.
All you need is a computer.
When economic or political instability strikes, inflation isn’t the only consequence. When currencies die, capital controls rise. Countries typically start to restrict the flow and exchange of money to prop up their currency. However, even countries not undergoing high levels of inflation can implement capital controls.
Capital controls refer to any restriction on the free flow of capital or any seizure of individual or corporate assets.
As most financial infrastructure is under government control in most nations, there is often no way to escape these repressive policies. USD₮ provides an alternative that allows entities and individuals to circumvent capital controls by utilizing an entirely different financial infrastructure.
This promotes freedom and can save lives when regimes become highly oppressive.
While US corporations may have a relatively easy ability to access and use dollars, companies around the world have a much harder time navigating global financial infrastructure.
Global banking infrastructure is highly inefficient, and for companies operating across multiple jurisdictions it is also highly expensive.
Whether it is access to an easier way to utilize dollar anchored payments or simply a way to allow a company to use a single currency for all payments, USD₮ empowers companies to conduct all payments in a single financial medium which is readily accessible.
It also can provide a more efficient way to store and even earn a yield on capital.
The growth of the DeFi ecosystem has been nothing short of remarkable. Brilliant minds from around the world have collaborated to build an entirely new approach to financial infrastructure where payments, exchanges, and assets can be listed, traded, and created in an entirely digital format.
These applications also eliminate traditional middlemen in the goal of providing more accessible and equitable financial services.
As DeFi applications exist solely on blockchain networks, they cannot natively utilize bank deposits. They need a digital currency to build into their products.
USD₮, as the world’s largest and most trusted stablecoin, is often utilized to satisfy that role. USD₮ is the most popular stablecoin and is used countless times per day to access DeFi applications.
The faster DeFi has grown, the more demand there has been for USD₮.
The Growth of Stablecoins Shows No Signs of Slowing
Despite the way that many traditional financial pundits are still left scratching their heads over why people use stablecoins and why there is so much demand for them, stablecoin issuance keeps soaring.
Stablecoins are easily one of the most successful and rapidly growing new financial products that has ever been introduced and one whose benefits become very clear to those who actually use stablecoins.
The four trends highlighted in this article are expected to continue:
1) The global economy continues to demand more dollars
2) More countries continue to try to obstruct the flows of capital
3) Companies continue to realize the benefits of utilizing stablecoins to manage their operations and balance sheets.
4) DeFi and general cryptocurrency usage continues to grow parabolically
While many other drivers for stablecoin growth exist that were not mentioned in this list, the four trends highlighted here will drive major expansion for stablecoin supplies over the next decade.
Tether is committed to maintaining its role at the forefront of stablecoin innovation and utilization. USD₮ is the world's most popular and widely trusted stablecoin with a total supply and value of over $83 billion.
Tether Token (USD₮) Launches on Kusama
Tether Operations Limited (“Tether”), the company operating the blockchain-enabled platform tether.to that powers the largest stablecoin by market capitalisation of over US $82 billion, having added US $56 billion since January 1, 2021, has launched Tether tokens (“USD₮”) on the Kusama network. At launch, USD₮ will be deemed with the asset ID 1984 and used to power transactions on its Statemine parachain.
Parachains are individual blockchains that run parallel within the Polkadot ecosystem. Kusama is a scalable network of specialized blockchains and Statemine is its first parachain. It is a public-good parachain that was designed to be the balance-keeper of thousands of different fungible and non-fungible tokens. Statemine provides the functionality for deploying assets, from tokenized artwork to stablecoins in the Kusama networks to give users a better experience with lower fees than existing solutions. By doing so, it addresses problems such as security, scalability and interoperability of blockchains.
The addition of Tether tokens to the Kusama ecosystem is a milestone moment. With an increasing number of decentralized applications seeking stablecoins that operate across numerous networks, Tether tokens provide access to the largest and most transparent option in the greater cryptocurrency ecosystem. It will ensure a smooth interoperable experience for their users based on its dedication to multi-chain accessibility, which allows anyone to build anywhere. With the launch of USD₮ on Kusama, developers will be able to compose trustless applications across chains, communities and networks.
“We’re excited to launch USD₮ on Kusama, offering its community access to the most liquid, stable, and trusted stablecoin in the digital token space,” said Paolo Ardoino, CTO at Tether. “For those who believe in the importance of decentralized, permissionless ecosystems, Kusama is a perfect representation of that ethos. It is a platform built to put the control in the hands of its users and we are looking forward to becoming an essential asset in its growing ecosystem.
This announcement further solidifies Tether's position as the most widely adopted stablecoins, having pioneered the concept in the digital token space. The stablecoin is now live on a total of ten networks and counting including Ethereum, Solana, Algorand, EOS, Liquid Network, Omni, Tron, and Bitcoin Cash’s Standard Ledger Protocol.
Going Beyond Trading: Tether Use Cases
Stablecoins have become a foundational piece of infrastructure for crypto trading globally. All over the world, traders use USD₮ to purchase derivative positions, store value when moving in between trading positions and transfer value between exchanges without volatility. This use case is true in countries that use the Dollar and in countries that do not! In that sense, Tether tokens represent a standard for value that transcends national borders.
As the first and largest stablecoin, USD₮ was chosen by leading exchanges to denominate derivatives contracts (which represent billions of dollars of notional value). This decision was due to USD₮’s robust liquidity and its long history of price stability. USD₮ is also the leader in stablecoin spot markets, where traders use USD₮ to denominate and trade various cryptocurrencies against.
However, the use cases for USD₮ and other Tether tokens stretch far beyond trading. USD₮ usage is growing for applications like cross border payments, remittances, and banking the unbanked globally, which is a crucial trend to watch.
Cross Border Transfers
International payments are much more complicated than most people are aware of and often carry a hefty price tag. Due to the architecture of the modern banking system, sending even small payments to another country can involve multiple parties and incur meaningful fees.
These payments can involve wire fees, forex (currency conversion) costs, and any service fees the intermediaries might charge. These fees can often be higher on a proportional basis for smaller amounts. International payments can take a number of days or even longer to complete.
USD₮ and other Tether tokens circumvent these issues by improving the settlement system, removing currency conversion fees, and settling in minutes not days. USD₮ transfers can also cost almost nothing in fees (depending on which blockchain is used for the transport layer).
USD₮ transactions have settlement finality, which means once the tokens have been received there is no way for the transfer to be reversed or for a financial institution to restrict immediate access to the funds.
This creates a seamless experience for businesses and individuals who operate overseas and USD₮ has seen significant growth as an international payment rail.
However, individuals and businesses have different needs when sending money internationally. While many of the same concerns apply to international payments as to remittances, remittances are usually for much smaller amounts where fees can constitute a disproportionate percentage of the total payment.
The most common type of remittance which is sent is one where a worker is sending money home to their family in another country. Rather than supporting workers around the world to send hard earned money home to their families in a cost effective way, most remittance businesses actually extract higher fees than necessary between wire costs, forex fees, and service fees.
USD₮ is increasingly used for remittances because it solves these key problems for workers globally. Tether tokens eliminate the need to interact with a business or third party or pay any fees except for a transparent transaction fee.
USD₮ also both eliminates the need to convert between two currencies and provides anyone the ability to hold USD₮ tokens even if they lack access to a bank account which can hold dollars. This is a crucial benefit for the unbanked globally.
Banking the Unbanked
Billions of people around the world lack access to banking infrastructure and even more only have access to limited or predatory financial services. Without access to financial infrastructure, individuals are cut off from the global economy and forced to store value in insecure or dangerous ways.
Individuals without access to robust financial infrastructure can lose their savings due to inflation, due to physical security issues with cash or due to corrupt financial service providers. USD₮ offers a solution to all three of these issues.
Inflation- The amount of people living with double or triple digit inflation around the world numbers in the billions. For individuals suffering from high levels of inflation, they lose the ability to save for their future in a reliable way. However, in order to avoid inflation, people need easy access to a more stable currency than the one which is inflating and for most living under high inflation it is a challenge to hold value in anything other than their local currency. USD₮ provides a lifeline that can be accessed by anyone with an internet connection that empowers them to store value outside of their local national currency when they so choose.
Security- For those without banking services, the only alternative is physical cash. While cash has many positive features, it requires physical storage and security. For individuals storing cash in their home, or on their person, personal security is always a risk. Even for individuals with banking access in cash dominated areas, withdrawing cash from a bank can be a physical and financial risk. USD₮ empowers users to store value in a purely digital way.
Corrupt Financial Service Providers- USD₮ empowers users by ensuring that, outside of tether.to, they don’t need to trust or rely on central intermediaries to settle a transfer.
USD₮ is the first and largest stablecoin and the most widely used stablecoin by cryptocurrency traders. With a current market cap of $82 billion USD equivalent (as of 4th April 2022), USD₮ is one of the largest and most successful financial innovations globally. Fully backed by reserves, USD₮ is utilized on every major blockchain to facilitate digital asset products, trading liquidity, and allow users to store value in a digital age.
The Mission of Tether Around The World
Cryptocurrencies have become a popular topic among those seeking to participate in an increasingly digital world. While it certainly is true that cryptocurrencies are among the best performing investments of the year ( or even the decade), there is too much focus on the price of these emerging assets that often obscures the tangible impact that digital assets are having on global economies.
All over the world, discussions surrounding cryptocurrencies are being had not just on the streets of major cities, but also within government offices and among the ranks of legislators. The question of what role digital assets will play in our future has become an increasingly pressing one.
At the top of this debate is the topic of stablecoins, which have become a major priority for legislators as they draft regulation and consider the role of cryptocurrencies on their respective economies. This could be attributed to the fact that some lawmakers have concerns about the similarities between stablecoins and official government currencies. Unlike other digital assets, stablecoins are not designed to appreciate in value, and, as such, are not typically considered an investment. Pegged 1:1 to fiat currencies, stablecoins are often considered the digital version of the dollar and therefore a competitor to official government currencies.
Stablecoins have many key distinctions that differentiate them from official government currencies:
1) Stablecoins are purely digital and are issued on distributed ledgers (however Tether maintains the ability to freeze assets when necessary).
2) Stablecoins can be held by individuals and corporations without using a traditional banking infrastructure, allowing users to avoid the cumbersome and sometimes predatory actors that are many modern banks.
3) Stablecoins can be indexed to any currency and can be accessed anywhere in the world regardless of jurisdiction
Due to these unique qualities, stablecoins, and specifically Tether tokens are capable of solving real problems around the world. USD₮ provides users with a way to escape some inflating currencies, access financial services, preserve wealth, and efficiently transfer value.
Tether in Lugano
Most recently, Tether announced a collaboration with the city of Lugano in Switzerland, to demonstrate the real-world use of blockchain technologies by practically applying it to local communities in the region. To date, most blockchain projects have focused on foundational efforts that give little attention to local communities and deliver practical applications with little real world application.
With a population of roughly 63,000 people, Lugano is Switzerland's 8th-largest city. This collaboration will allow Lugano residents to pay taxes, parking tickets, public services and tuition fees using cryptocurrencies such as Tether.
The goal of this collaboration is to scale the city's blockchain capabilities and promote Lugano as a major hub for European blockchain adoption. As the world’s largest stablecoin, Tether has the potential to transform Lugano into a better and more open, transparent and smart city.
Tether in Latin America
Tether provides a stable and efficient way of transmitting dollars. It is widely used by tens of thousands of traders daily across Latin America simply because it makes trading and arbitrage, among other things, more efficient.
It is the most widely used crypto asset in the region and its primary use case is sending remittances. Given that a large proportion of Latin Americans live outside of the country, the remittance market moving in and out of the country has seen exponential growth.
The use cases for Tether in the region do not stop there. There has been the successful use of USD₮ in the peer-to-peer (P2P) trading markets. An increasing number of people in Latin America are also beginning to accept Tether as a method of payment for real life services.
Amid high inflation and a steady devaluation of the local currencies, the unique properties of Tether have allowed it to become the basis for a new financial system..
Tether in Turkey
Turkey’s inflation rate continues to rise to all-time highs, causing havoc for ordinary Turkish citizens. USD₮ has been a tool that has helped many Turks navigate this financial crisis and keep their families safe.
In the fall of 2021, the Lira became the most traded currency against USD₮, surpassing even the dollar and the euro; Lira trading volume peaked at over $22 billion per week.
To put this in perspective, the world's largest FX currency market in London traded $33.5 billion dollars against the Lira per day in October. This means that Lira trading against USD₮ represented close to 10% of total Lira FX volumes at the world’s largest FX market against the dollar during this time period.
This clearly shows that USD₮ has grown into a major financial instrument for people in Turkey, rivalling the size and impact of many other financial instruments and currencies.
Far from just being used as a vehicle for financial speculation, USD₮ has grown into a valuable tool to protect the savings of families around the world.
Tether in Argentina
Argentina is another country that has battled high levels of inflation throughout its history. Due to the instability of the Argentinian Peso, there is high demand for US dollars.
However, due to government restrictions, Argentinian citizens are forced to access US dollars by means of black markets where dollars trade at high premiums to the official exchange rate. This forces workers and savers to operate in a currency that consistently experiences inflation that exceeds 30% per year.
USD₮ allows Argentinians to access a market that is truly global and liberates them from local black markets with highly constrained liquidity resulting in high premiums. It also empowers them to hold Tether in ways that cannot be confiscated by the government, unlike local bank accounts.
Strike, a popular payment application, launched late last year in Argentina and is using USD₮ to empower Argentine citizens to access reliable financial services.
Tether has provided a real tool for users facing economic crises in Argentina.
Tether in Myanmar
There have been ongoing insurgencies in Myanmar since the country gained independence in 1948. Its latest conflict has been between the current military government and a parallel government, The National Unity Government (NUG) whose leader has received commendations from the US and been acknowledged by the European Union.
The NUG announced in December 2021 that it would be adopting USD₮ as the official currency of the NUG. This highlights more broadly how USD₮ can be used as not just a financial tool, but as a political tool for people and organizations all over the world cut off from financial infrastructure.
USD₮ provides an easy way to access dollar-denominated liquidity and conduct trade freely in a country where restrictions have become heavily enforced.
This proves that USD₮ can be used as a tool to promote democracy and financial freedom around the world, by allowing anyone to access the relative stability of the US dollar.
The Success of Tether
USD₮ can be thought of as a technology that is built on top of the financial infrastructure that is the US Dollar. USD₮ fundamentally empowers more people to be able to access and use the US Dollar in areas where access may be restricted or undeveloped.
Trust in the US Dollar underpins the success and adoption of USD₮ around the world. The trust that entire nations of people have placed in USD₮ is only possible due to the success of the US Dollar as an alternative for those who do not have confidence in their own government's currencies.
However, trust should not be easily given and at Tether we strive to continually earn your trust by providing industry-leading transparency into the reserves that back USD₮.
You can find our most recent quarterly assurance opinion and our Consolidated Reserves Report here.
We believe that stablecoins, and USD₮, are tools of global financial empowerment and financial freedom. We believe that USD₮ strengthens the US Dollar globally and provides more people around the world with access to a stable currency.
And we believe that Tether will continue to strive to lead the stablecoin industry forward in transparency, reach, and cooperation with global regulators.
Tether as a Tool for Financial Freedom
Technology is one of the most potent forces for change. It shapes our individual lives and how we communicate. It changes the preferences of nations and how countries protect themselves. It even moulds our culture and how people relate to each other.
Technology exerts incredible influence over our world. However, it is important to recognize that technology is inherently neutral and that human beings decide what it stands for and how we use it.
Einstein’s atomic insights can be used to supply humans with abundant, clean energy, or they can be used to build the most destructive weapons known to man. Technology is neutral, but the way we use it isn't.
So what do cryptocurrencies stand for, and how will we use them?
Promoting freedom around the world is one of the most important values and goals that cryptocurrencies can promote.
Enhancing global financial freedom for billions around the globe is a guiding pillar for Tether. It is a central value for the entire organization. It is also a foundational value for Bitcoin, Ethereum, and the entire industry.
We believe that it is critically important to build financial tools that exhibit strong censorship resistance so that ordinary people have the ability to protect themselves against financial censorship and the mismanagement of national currencies.
And while many countries are struggling with financial oppression today, these tools must be built before they are needed. Western economies have benefited from the most stable and efficient financial system in the history of humankind over the last several decades.
Due to this, many people are skeptical of the need for tools like Bitcoin and USD₮. However, this is changing quickly as global financial infrastructure is being increasingly weaponized and inflation is at multi-decade highs.
When someone needs access to censorship-resistant money, they will be grateful that someone built and refined the technology over the last several years instead of waiting until there was a need for it.
For the citizens of many countries around the world, USD₮ is the most reliable way they can access US Dollar-denominated liquidity, and while tools like Bitcoin are essential for preserving value over long time horizons, many need and demand access to US Dollars as well.
USD₮ protects people all over the world against inflation in their local currencies, highly restrictive capital controls that prevent them from preserving their hard-earned wealth, and even the mere ability to transact overseas.
It’s no wonder the demand for USD₮ has grown so fast. USD₮ is one of the largest financial instruments in the world, and while there are many reasons for this growth- access to censorship-resistant money is a key part of it.
It’s possible to directly observe how usage of USD₮ grows as countries pursue financial oppression, capital controls, and mismanage their currencies. Like clockwork, people seek out the best ways to protect their financial future, and Tether is proud to be a lifeline for anyone who needs to ensure their financial freedom.
While Tether is focused on financial freedom, that doesn’t mean that Tether doesn’t support well-constructed financial regulation. Tether has prevented hackers from utilizing stolen funds many times and collaborates with law enforcement regularly. Supporting financial freedom and preventing financial crimes can coexist, and Tether supports both of these goals.
While digital assets have grown exponential over the last decade, we are still in the early stages of the disruption of the global financial system. It is still up to all of us to determine how this technology is used. Will cryptocurrencies promote global financial freedom?
Will they empower billions of people to access financial resources historically denied to them? Will they provide a necessary counterbalance to government overreach?
Or will the technology be used to construct certain types of CBDC’s which make all of these problems worse?
The answer to this question depends on all of us, the digital asset community, to fight to ensure that cryptocurrencies enhance financial freedom for all people.
We know what future Tether is fighting for, and hopefully, now you do too.
Tether supports and empowers growing ventures and innovation as a digital token built on multiple blockchains.