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In this blog, you can learn about some of the main factors that make USDT secure and vulnerable. You can also learn about why they are important for the crypto space and how their value remains stable.
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What is USDT and How Safe is It?
USDT (also known as Tether) is the most popular stable cryptocurrency in the world. Tether is not only the largest stable cryptocurrency in the world, but it is also among the top cryptocurrencies in terms of market capitalization.
The reason USDT is owned by people is that it allows them to get in and out of cryptocurrency trades quickly. The crypto space is highly volatile and stable coins like USDT allows traders to secure their funds when the volatility is high. The value of a USDT is connected to that of the U.S Dollar, each USDT is the equivalent of one U.S dollar and its value rises and drops depending on the value of the dollar.
Tether is not small or middle scale by any means as it hosts billions of dollars in trading volume on a daily basis. USDT also allows big whales and investors to move their funds through the crypto space in a secure way without disturbing the market much. It is a crypto that is valuable and useful to all types of crypto investors. If you are joining the crypto space, chances are you will hold USDT or any other stable coin from time to time.
With billions of dollars invested in the asset and the popularity of Tether gives rise to the question of whether it is safe or not. In general, Tether is a safe cryptocurrency. As long as you are holding it in a secure wallet you are not going to face any troubles. Let’s take a look at a few of the main factors that make USDT secure or vulnerable.
Ethereum Blockchain Security
Tether is a completely centralized cryptocurrency that is built on the popular layer 1 solution Ethereum. The Ethereum blockchain hosts thousands of projects and is completely secure to use. The value on the blockchain is meant to be backed by 1 US dollar stored on the company’s (Tether Ltd.) balance sheet in the form of bonds or cash.
That means that no one can infiltrate your wallet and take away your USDT unless you are being careless or using an unreliable wallet. The only risk here is that the company itself goes bankrupt or loses all the dollars they have for backing. Also, the value increases or decreases with the fluctuations in the actual dollar, so if the U.S dollar is losing its value over time so will the USDT.
Fractional Reserve System
One thing that makes people worry about Tether is the fractional reserve system. If you are not familiar with the term it can simply be defined as the system which allows the bank to issue more loans than the actual value they hold. For example, if a bank is required to have 20% reserves in their accounts they can issue a $1,000 loan by having only $200 in their reserves.
The problem with this system is that if all the people who are storing funds in the bank ask for the money at once it can cause problems. Such an occurrence is called bank run and it is extremely rare. It is highly unlikely for all the bank customers to ask for their money at the same time.
On the other hand, even if it happens to a bank they have a safety net to fall back on. Banks have FDIC insurance that can help them recover in case of a bank run. When it comes to Tether there are no securities. For every Tether issued, the original amount for it in the reserve bucket is around 74 cents. That means the reserves only have around 74% of the real value that is being issued by USDT.
However, just like banks, it is highly unlikely that all USDT users would want to withdraw their money at once.
One important factor that cannot be overlooked is how you store your USDT. If you are not storing your USDT in a secure wallet then you are putting it at risk. The cryptocurrency space is highly secure, but it can also be vulnerable. It is advised that you do proper research before choosing a hot wallet and make sure that it cannot be breached.
Investors can also consider holding their USDT on platforms like Celsius Network as they offer decent interest rates on stable coins. It is recommended that you do your research and choose a service wisely to earn interest in your USDT.
USDT is Too Big to Fail
Another thing about USDT that cannot be ignored is that they are too big to fail. Just like if big banks fail, they will leave the economy in chaos, if USDT fails it will be a huge setback for the cryptocurrency space.
Tether is the biggest stable crypto in the world and it simply cannot fail. If it does, people’s trust in cryptocurrencies will be destroyed. It will also make people move money to other stable coins which at this moment are not too big to handle that sort of pressure.
Conclusion: Is USDT Safe to Use?
At the time of writing this blog, the market capitalization of USDT is $78 billion. This huge number shows that the crypto space is highly dependent on the USDT and everyone in the crypto space trusts it. USDT can be a safe asset to invest in as it is trusted by millions of people. However, it is also advised that you store your USDT in a safe manner and in reliable wallets.
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