Stablecoins have been around for a while and if you’re up to date, then you’ve heard of USDT and its groundbreaking volume. But what is USDT’s importance in your life and how can you make it work for you? This article explores this question and more.
To understand USDT Let’s begin by understanding what a stable coin is.
What’s a Stable Coin?
A stable coin is a type of cryptocurrency that’s pegged to other stores of value like fiat currency, other cryptocurrencies or even commodity money like gold. The idea is that the value of these other assets would support the value of the stable coin and reduce volatility.
Demand and supply dictate the value of cryptocurrencies such as Bitcoin. This means that if more people believe it’s valuable, then it is. On the other hand, if fewer people believe in its value, then, its value drops. Factors like the opinion of the media, a government’s opinion and even how the average person feels about the coin could influence its value in the market.
The volatility quality makes a cryptocurrency like Bitcoin a perfect fit as an investment asset but not as a medium of exchange for day to day transactions.
On the other hand, stable coins enjoy stability because they are pegged to assets that have relatively strong stability. This makes them better suited for day to day transactions and as a store of value.
The most popular stable coins are backed by strong fiat currencies like USD, GBP and Euro. But there are a few others that are backed by other asset types. An example is MakerDAI that’s backed by a mix of decentralized crypto assets.
Like USDT, other US Dollar backed stable coins include Gemini Dollar, TrueUSD and USDCoin.
What is USDT (Tether)?
USDT is a stable coin that’s pegged to the United States Dollar (USD). It has a 1:1 ratio with USD. This means that 1 USDT is approximately 1 USD at all times.
This also means that if the value of 1 dollar is 480 Naira, the value of 1 USDT would be 480 Naira as well.
USDT was created as a solution to volatility, a challenge many people face with cryptocurrencies. Volatility is the rate at which the price of a coin changes. So, using cryptocurrencies as a store of value or means of exchange can be risky. But volatility proves an advantage for traders and investors.
USDT doesn’t run on its own blockchain. It is hosted on the Ethereum blockchain.
Now, let’s get it to the technical stuff and move on to practical uses of USDT.
How does USDT work?
USDT is a bridge between fiat currency and cryptocurrency.
To get a better picture of this, let’s say Jane, a Nigerian isn’t happy with the way the Naira fluctuates. So she wants to keep her money in a form that won’t fluctuate. She also wants to be able to do it on an app from the comfort of her home and convert back to Naira anytime she wants.
She could also want a currency that allows her to pay her business supplier in South Africa or send some money to her niece in Japan. She wants to conveniently do all this in as little as 30 minutes without ever stepping into a bank.
By now, just looking at all the normal steps she would have to take, has probably given you a headache. But with USDT, all she has to do is buy USDT equivalent to the amount she wants to pay out, and send it to her suppliers. They can quickly exchange it for their local currency on an exchange and Jane can sleep peacefully knowing tat the value of the money she sent hasn’t reduced.
But why use USDT instead of USD?
Just like cryptocurrency, Tether created USDT to be decentralised. So, no single individual or organisation controls it.
One of the advantages that USDT has over USD is that it cuts the access time and reduces the access period. Depending on the country you are in, getting USD might require going to your bank and spending valuable time filling forms. But with USDT, in as little as 5 minutes, you can exchange your local currency for it and execute the transaction you have in mind.
Another advantage that USDT has over USD is the fact that it cuts across barriers. Because USDT is a digital currency, organisations and individuals that support cryptocurrency accept it. While USD is limited to countries like the USA where it’s a legal tender, USDT has a much wider borderless reach.
What is USDT’s Importance?
USDT is a breath of fresh air for anyone who either trades crypto or deals with an unstable local currency. It’s important in the following ways:
1. It Protects You From Volatility
Because USDT is a stable coin, it is way less volatile. You can hold USDT and not have to worry about price fluctuation which is common with most cryptocurrencies.
Imagine you’re trading Tron and you make some profit but the price starts going down. Selling it for your local currency may take a while to process and because your currency fluctuates too, this isn’t the best option for you.
The best thing would be to convert to a stable currency like USDT until the price of Tron stops dropping. This way, you save time and protect your profit.
2. It Acts as A Lifejacket During Inflation and Currency Devaluation
People who live in countries with weak currencies or currencies with high inflation rates need help staying afloat. And what is USDT if not an inflation lifejacket? Since it has the same value as the US dollar, you have a better chance storing your money in USDT than leaving it in a devaluing currency.
For example, people who bought USDT in January at 360 can sell it for more than 450 today because the Naira has lost value in that period. These people have been able to protect their money from this value loss.
How to Buy, Sell and Store USDT
You can buy, sell, send, receive, and store USDT on Quidax from anywhere in the world. Find out more details in the video below: