What Is USDT (Tether) & How It Works

Powered by blockchain technology and pegged to real financial assets, stablecoins took the cryptocurrency world by storm back in 2014, offering more stability and predictability compared to other digital currencies.

One of the most prominent among them is USDT (Tether)—a fiat-collateralized stablecoin pegged to the U.S. dollar. It’s currently one of the most traded and visible cryptocurrencies globally, competing in popularity with the industry OGs, Bitcoin and Ethereum.

Acting as a bridge between traditional finance and blockchain technology, USDT is a valuable asset for both newcomers and seasoned crypto traders. In this guide, we’ll break down everything you need to know about USDT—how it works, its key benefits, role in the crypto ecosystem, and how to acquire and use it safely.

What Is USDT (Tether)?

Similar to its younger cousin, USDC, USDT, known as Tether, is a stablecoin pegged to the U.S. dollar at a 1:1 ratio. You can always trade one Tether for 1 USD, whatever happens in crypto markets. This makes it an ideal digital alternative to fiat currency, providing users with price stability without needing to exit into traditional banking systems.

USDT was first issued in 2014 by Tether Limited, and despite early controversies, it has grown to become the most widely traded stablecoin by volume globally. Its main function is to offer a stable, liquid asset for cryptocurrency trading, reducing the risks associated with high market volatility.

In addition to its U.S. dollar peg, Tether also issues stablecoins tied to other fiat currencies, such as the Euro (EURT), Mexican Peso (MXNT), and Chinese Renminbi (CNHT), allowing users to easily exchange between different fiat-backed digital assets.

How Does Tether Maintain Its Peg?

To maintain its 1:1 peg with the U.S. dollar, Tether Limited uses a system of reserve backing. Each USDT token is theoretically backed by an equivalent amount of assets held in reserve. These reserves have historically included a mix of commercial paper, cash, and, more recently, mostly U.S. Treasuries and cash equivalents.

Tether issues and redeems tokens to match market demand, allowing it to stabilize the supply and maintain the dollar peg. Currently, over 151 billion USDT tokens are circulating in the market. 

While the company provides third-party attestations of its reserves, it has faced ongoing regulatory scrutiny and public skepticism due to past delays in audits and questions around full transparency.

USDT's Role in the Cryptocurrency Ecosystem

USDT plays a vital role in cryptocurrency trading by offering a stable connection to the U.S. dollar amid the volatility of most digital assets. It enables traders to move in and out of positions quickly, preserve value during market swings, and stay active in the crypto ecosystem without relying on traditional banks.

USDT is one of the most flexible stablecoins out there, which makes it easy to use for various purposes, such as purchasing goods at different vendors, acquiring NFTs, and even participating in the initial coin offering.

Beyond trading, USDT is also used in DeFi (decentralized finance) for lending, borrowing, and earning yields. It’s also a popular tool for cross-border payments and remittances, especially in regions with unstable local currencies.

Blockchain Platforms Supporting USDT

USDT was originally launched on the Bitcoin blockchain but has since expanded to multiple blockchain networks, including:

• Ethereum – Broad compatibility, high adoption, but can have high gas fees.
• Tron – Faster and low-cost transactions, popular for transfers and exchanges.
• Solana – High throughput and very low fees, though less adopted than Ethereum.
• Algorand, Avalanche, Polygon – Additional options offering fast, scalable USDT transfers.

The multi-chain approach gives users flexibility in choosing the network that best suits their needs.

Benefits and Risks of Using USDT

There is no perfect stablecoin, yet USDT’s benefits are far more pronounced than the associated risks with acquiring and holding this cryptocurrency.

Benefits:

• Stability – Pegged to the U.S. dollar, USDT offers a price-stable digital dollar for hedging during volatile market conditions.
• Liquidity – Accepted on nearly every crypto exchange and widely used in trading pairs.
• Speed & Cost-Effectiveness – Especially on networks like Tron or Solana, USDT transfers are fast and affordable.
• Versatility – Used in DeFi, remittances, and as a reliable unit of account in crypto.

Risks:

• Centralization – Tether Limited controls token issuance and reserve management, creating reliance on a single entity.
• Regulatory Uncertainty – Tether has faced legal challenges and ongoing regulatory scrutiny in multiple jurisdictions.
• Transparency Concerns – Past delays in releasing audited reserves have led to trust issues.
• Peg Stability – While generally stable, USDT has occasionally slipped from its 1:1 peg during extreme market conditions.

How to Acquire and Store USDT

Buying USDT is a straightforward process even for beginners. You can acquire Tether through most major cryptocurrency exchanges, like Binance or Coinbase, or dedicated platforms and crypto wallets. USDT can also be received as payment or transferred between users on various blockchain networks.

Tip: New to crypto purchases? Learn more about how to spend stablecoins

Once acquired, you can use USDT for digital payments, exchange it for other stablecoins, send it to fellow traders, or store it in a compatible crypto wallet that supports your preferred network (e.g., ERC-20, TRC-20). In this regard, Rizon offers a secure and user-friendly interface for crypto purchases, payments, and storage.

Ready to acquire USDT? All you need to do is download the Rizon app, and you can get your digital crypto card in 2 minutes!

Conclusion

As one of the oldest and most widely used stablecoins, USDT is here to stay and rule the cryptocurrency ecosystem, offering traders a way to maintain dollar-value stability without leaving the blockchain. Its high liquidity and broad acceptance make it a go-to choice for everything from trading and DeFi to cross-border payments.

Yet, with potentially new stablecoins entering the crypto space, understanding first how USDT works and where it fits in your strategy is essential. And if you're looking for a secure and user-friendly way to buy, store, and use USDT, Rizon makes it simple to get started and stay in control of your digital assets.

FAQs about USDT

Is USDT fully backed by U.S. dollars?

USDT is backed by a mix of assets, including cash, U.S. Treasuries, and other short-term investments, not just physical dollars. Tether releases reports on its reserve backing, but some critics demand more rigorous, transparent audits.

How does USDT differ from USDC or BUSD?

USDT offers the highest liquidity and widest usage in trading. USDC is more transparent and regulated (learn more about what USDC is), while BUSD was regulated but has reduced issuance due to legal pressure.

Is Tether (USDT) safe to use?

USDT is widely used and generally stable, but its centralized control and limited audits mean users should weigh trust and risk levels compared to alternatives, like USDC.

Can Tether lose its 1:1 peg?

It’s rare, but short-term deviations have occurred during periods of high market stress or controversy. Back in 2018, USDT briefly dropped to around $0.88 on some exchanges amid concerns over Tether’s reserves and banking relationships. However, the peg is typically restored quickly through market operations to reassure users.

What blockchains does USDT run on?

USDT is available on Ethereum, Tron, Solana, Algorand, Avalanche, and more—each offering different speeds and transaction costs.

How do I verify Tether’s reserve holdings?

Tether publishes attestation reports on its website. These are third-party reports but not full audits.

Who controls Tether issuance?

Tether Limited, a private company, is solely responsible for the issuance, redemption, and reserve management of USDT.