Current status and short history of USDT

Stablecoins have had a literally transformative impact on entire cryptocurrency industry, allowing more investors to become familiar with crypto tokens and start trading with them. Convenience and stability provided by this type of coin have been in demand in crypto market for a long time. Being pegged to the exchange rate of stable world currencies, this token becomes an attractive tool for trading, investing, and even making payments.

The largest stablecoin by capitalization in the world is USDT, and today we will tell you more about the nature of this coin, history of its creation, and its potential for future. If you didn't know how USDT was created and why, get yourself comfortable — this article will take about five minutes to read.

What is USDT and how it works

First of all, important to note that USDT is not just one more cryptocurrency, it is specifically a stablecoin, which fundamentally distinguishes it from other cryptocurrencies, for example, Bitcoin. Everyone knows that Bitcoin is subject to significant exchange rate fluctuations and even now it either falls below the historical minimum or rises in value higher than ever before. Bitcoin's significant volatility is known even to those who don’t follow crypto news at all and are not keeping up with this industry.

This characteristic of cryptocurrency (not just Bitcoin, by the way) has always concerned financial world, and stablecoins appeared in response to this, which include USDT. A stablecoin is a cryptocurrency with stable exchange rate that is pegged to a certain national currency, in this case, US dollar. USD-T — US Dollar by Tether.

The main reason for creation of this coin was desire to form a certain bridge between cryptocurrency and fiat money and to minimize the impact of cryptocurrency volatility on trading. This would allow more confident transaction operations on crypto market and preserve assets without fear of losing everything suddenly due to an unexpected market shift.

Tether company was initial founded under the name Realcoin in 2014. The company's task was to develop a stable cryptocurrency that would meet this need. Today company named Tether and processes 2/3 of all stablecoin transactions in the world. World has known other attempts to create stable cryptocurrency before Tether, but they were not successful due to a number of regulatory and technical problems. Tether, however, attracted the interest of investors and crypto enthusiasts due to its peg to one of the strongest world currencies —US dollar — and overall simplicity of the concept. In other words, creators were able to explain to the world why USDT is needed, how it will work, and what function it will perform.

The main important aspects of the USDT cryptocurrency can be named as follows:

• Direct peg to dollar: Each USDT token is in theory backed by one US dollar. It is assumed that Tether keeps its reserves in dollars equal to the total amount of issued USDT. This builds more trust in the coin and its value.
• Exchange rate stability: Again, due to the peg to US dollar, USDT exchange rate always corresponds to it, allowing investors to store their savings and assets in this particular coin. Very insignificant exchange rate fluctuations practically do not affect the value of token and give a sense of solid stability in not very stable crypto market.
• Quality technology: Initially, USDT was based on the Bitcoin protocol, but later it was moved to Ethereum blockchain to increase scalability and functionality. 

All these features make USDT an attractive asset and help it increase trading volumes every day. Although today position of USDT seems unclear to European investors, as Tether has faced regulatory requirements from European Union, which it has not been able to meet. Because of this, all European exchanges that comply with current MiCA legislation are obliged to delist USDT and not conduct transactions with it.

It is expected that situation will change as soon as Tether takes measures to meet the expectations of European Union. But obviously not all of them are acceptable to the company. At the same time, other stablecoin issuers are also around and have already taken advantage of such a situation. Mainly Circle, which issues USDC, is actively expanding its customer base. Experts expect that Tether will try to hold the market volumes and will find come to a consensus with the EU. Other fintech companies may be also solid counterparts, they begun creation their own stablecoins, including PayPal, Revolut, and even Stripe.

USDT and USDC: which is better?

Eternal battle of the two main stablecoins we already feel in the background, but let's try to figure out which one is better and why. Although USDT is currently used most often, despite all the difficulties with European Union, its main competitor — USDC from Circle company comes next.

USDC is the second most popular stablecoin; managed by Circle in cooperation with Coinbase, having reputation of transparent and honest for users. Actually, USDC really pays attention on compliance with current legislation in operation countries. Although it was launched in 2018, which is four years later than its main competitor, it has already gained a significant market share. USDC growths trust of users having 100% reserves, meaning the issuing company confirms that all issued coins correspond to reserve dollars in their accounts.

At the same time, the answer to this question for USDT is not so clear, and some suspect that company may only cover less than 30% of the issued coins with real reserves. This may mean a higher risk for investors and that the coin may "deflate." Although both stablecoins have experienced periods of value fluctuation and have successfully returned to a 1:1 exchange rate with the US dollar, we cannot be sure this happens only once. 

Therefore, USDC is considered a safer cryptocurrency for inexperienced investors, as its base is understandable and transparent to regulatory financial authorities, and we are confident that Circle activities comply with all standards and do not violate user rights. Circle has undergone multiple audits to confirm its compliance.

However, when considering the usage of cryptocurrency, this will not be the main point for everyone. USDT wins in terms of distribution, and more probable, you can easily find an exchange or counterparty that works with USDT than with USDC. And this means that making a payment or exchanging USDT will be easier and most likely more profitable.

Most gaming websites today accept USDT for deposits due to its popularity and ease of processing. Crypto processing, in particular, can be based on this currency, and all accumulated coins (such as BTC, ETH, LTC, and others) can be received in the form of USDT for further operational activities. This suits most companies, as we have already said, USDT is so popular that it is used for settlements between counterparties and as payment mean for professional services. 

Considering all these points, seems there’s no clear answer on which stablecoin is better. The answer to this question will depend on your goals and risk appetite. If compliance and regulation are more important to you, then choose USDC. If you are looking for the most widespread stablecoin and are willing to take risks, USDT will undoubtedly make your life easier. 

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