USDT, short for United States Dollar Tether, is the most popular stablecoins.
Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, which can experience extreme price volatility, stablecoins are designed to maintain a stable value. The goal is to peg their value to a more stable asset, in this case the US Dollar (USD), which is why you might often see it referred to as "USDT" or "US Dollar Tether."
This article will explain how USDT works and its use cases to a Trinbagonian.
How does USDT work?
USDT uses a fully collateralized model.
This means the value of the stable coin is backed 1:1 by Cash, Cash Equivalents, Other Short-Term Deposits, Corporate Bonds, Precious Metals, etc..
Tether limited, the issuing company for USDT will issue 1 USDT to a customer when they receive 1 USD, or equivalent, they will then hold the USD dollar in their reserve accounts until that 1 USDT is redeemed by a customer. This results in the value of 1 USDT always being worth USD as 1 USDT can be redeemed for 1 USD at any time.
Tether limited exact reserve breakdowns and audits can be viewed by following this "link"
USDT's peg may fluctuate sometimes due to people buying or selling one USDT for another Digital Asset, this results in the peg moving above or below one dollar. However, these price differences always move back to a 1 dollar due to Tether's ability to always redeem that 1 USDT for 1 USD.
Why use USDT?
Stablecoins have several uses in the digital asset space:
1. Price stability: Stablecoins are often used by traders and investors in the digital asset space to move profits into that are more easily accessible as compared to USD. This allows them to quickly utilize the stablecoin to repurchase a digital asset if the price moves lower while also keeping the value of those profits since stablecoins don't move in price.
It can be used to store your TTD in a stronger currency like the USD.
2. Stablecoins are very efficient to use in terms of accessibility. Any volume of stablecoins can be moved within seconds without the need for approval by a third party. This allows traders, investors, or people using the stablecoin for personal or commercial means to utilize the stablecoins in any way they please at any point in time from anywhere.
This feature allows for:
Cross Border payments/ transactions as a business (especially to those who have forex shortage issues).
Remittances (You can easily and quickly receive money from those abroad, or send money to family and friends).
3. Access to more financial products: When you have stablecoins, you can utilize Blockchain based financial services.
These allow you to get higher interest rates on your USDT (4% on average, or even much higher depending on the platform) as compared to a bank.
Access to loans.
Stock and forex trading
and much more products.
If you want to learn any more details on how you can use stablecoins please read "Stablecoins in Trinidad and Tobago"
