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Fiat Currency
Fiat currency is legal tender that does not rely on valuable commodities as a standard. It doesn't represent tangible goods, and the issuer is not obligated to redeem the currency for physical items. Its legitimacy as currency is established through legal regulations. The value of fiat currency comes from the belief that it will maintain purchasing power in the future, but it lacks intrinsic value. Examples include the US Dollar, Euro, Japanese Yen, Chinese Yuan, etc. (Historically, gold and silver were considered commodity money.)
Trading Fiat Currency and Cryptocurrency
Apart from miners, blockchain project initiators, and early investors, most people initially acquire cryptocurrencies by exchanging them with fiat currency. This is one of the reasons for the rapid growth of domestic secondary markets. Why, then, do foreign markets prefer crypto-to-crypto trading? One crucial reason is that crypto-to-crypto trading eliminates the involvement of fiat currency, cutting off the money laundering chain outside exchanges and avoiding regulatory scrutiny related to fiat. However, there are rumors suggesting that, in the end, only crypto-to-crypto trading platforms may remain in domestic markets. Nevertheless, many traders may not prefer this scenario, so what's the solution? That's where USDT comes in.
What is USDT?
Tether USD (USDT) is a token launched by Tether Limited, pegged to the stable value of the US Dollar (USD) at a 1:1 ratio. Tether Limited claims strict compliance with a 1:1 reserve guarantee, meaning for every issued USDT token, there is a reserve of 1 US Dollar in their bank account. Users holding USDT can, after completing user authentication with Tether Limited, exchange the token back to fiat currency at a 1:1 ratio (minus remittance fees). Currently, USD and Euro (EURT) are held in separate banks, with support for additional currencies like the Japanese Yen planned for the future.
Fiat currency serves as the reserve, and the on-chain tokens represent newly issued fiat currency, positioning Tether in a role similar to a central bank. On exchanges where USDT is listed, its price is generally anchored around 1:1 with the US Dollar, with minimal fluctuations. There have been occasional minor fluctuations, often due to liquidity constraints or traders being unwilling to undergo user authentication with Tether, accepting USDT as a return for US Dollars. Additionally, users can verify funds on the Tether platform to ensure transparency. In simple terms, USDT is equivalent to an equal amount of US Dollars, i.e., 1 USDT = 1 USD, making it a stable token in the volatile cryptocurrency market.
Advantages and Functions of USDT
1. Hedging: Due to its stability, USDT can be used for risk aversion. On currency trading platforms, where fiat currency cannot be cashed, there is no way to avoid danger if BTC or ETH experiences a sharp decline. However, with USDT, when the cryptocurrency price falls, one can immediately convert it to USDT to ensure that assets do not devalue. This is crucial for crypto-to-crypto trading platforms.
2. Price Observation: As USDT is equivalent to USD, with 1 USDT = 1 USD, the value of each currency in terms of USDT implies its price in USD.
3. Withdrawal: Since the Tether project aims to tie USDT to USD, it can also be used to withdraw US Dollars. However, this process is complex and a focus of regulatory attention.
Risks Associated with USDT
The biggest risk of using USDT is the complete centralization of Tether's issuance, acceptance, regulation, and operation risks. Regulatory issues could lead to the closure of Tether, exposing USDT in the market to acceptance risks and immediate devaluation. Additionally, the efficiency of user verification with Tether is reportedly extremely slow, with only a small number of users processed daily, reducing its widespread adoption. Tether's integrity poses another risk, as unlike transparent blockchains, the data about the US Dollars held as collateral in banks is not publicly available. If Tether were to misappropriate funds one day...
Of course, in financial markets, everything comes with risks, and while USDT can currently serve as a safe haven, it's essential to stay informed. Here's a list of cryptocurrency exchanges that currently support USDT trading pairs: Poloniex (P), Bittrex (B), HitBTC, Binance, Kraken (K), Liqui, Cryptopia (C), and more. The upcoming GBEX exchange will also support USDT. Currently, USDT ranks fifth in trading volume among all currencies worldwide, following BTC, ETH, LTC, and BCH. |
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Post time 10-1-2024 11:13:39