Tether tokens, traded as USDT, are part of a new cryptocurrency type known as “stablecoins”. They’re designed to keep crypto valuations stable and avoid broad swings seen with Ethereum and Bitcoin prices from time to time.
Tether is a fiat collateralized stablecoin, which means fiat currencies (USD, EUR, etc.) back up each of the Tether coins in circulation. There are different forms of stablecoin. One is crypto collateralized, which uses cryptocurrency reserves for collateral. Another type is non-collateralized. These have no collateral yet operate in a similar way to a reserve bank, to keep the right amount of tokens available according to economic conditions.
Originally, Tether was devised as a way to connect cryptocurrencies and fiat currencies in a stable, transparent manner. The team also wanted to keep transaction fees as low as possible. Tether tokens can’t be exchanged for USD, and it’s estimated that 80 percent of Bitcoin trading is completed in Tether. It was known as RealCoin at launch, but was rebranded by Tether Ltd., the business accountable for keeping fiat currency reserve amounts.
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