What is USDT? Everything You Need to Know

With the launch of our new USDT perpetual contracts, we are excited to introduce an in-depth guide on USDT (Tether) where we explain what USDT is, its transaction volume, and more.  

USDT Overview

Tether (USDT) is a cryptocurrency designed for each token to be represented by an underlying US dollar. Each USDT token is pegged to a US dollar that is held in Tether Limited’s reserve balance and can be obtained through the Tether platform. Tether has been issued on the Omni, Ethereum, Tron, EOS, Liquid and Algorand blockchains (Source).  

USDT Notable stats (All stats from April 10, 2020) –

Average time a token stays on an address before being transferred – 6 weeks (Source)

Total USDT in circulation – $6,673,040,700.24 (Source)

55.33% of USDT trades occur during Eastern trading times (past 14 days) (Source)

44.67% of USDT trades occur during Western trading times (past 14 days) (Source)

What is Stablecoin?

Stablecoins are cryptocurrencies designed to minimize the volatile price movement within the cryptocurrency environment by pegging each token to an underlying crypto, fiat money or exchange traded commodity such as precious metals.

Built with the same features as other popular cryptocurrencies, stablecoins offer simple transactions through existing cryptocurrency infrastructure with trustless networks using the appropriate block explorer. This enables payments requested in a particular fiat currency or precious metal, and can protect recipients from sudden price changes.

While USDT’s reserve and issuance system is controversial, compared to the majority of stablecoins, USDT still offers the longest track record and strongest solvency.

The majority of Tether lives on the Ethereum blockchain

When considering which blockchain to hold USDT on, it’s important to note that over 68% of USDT tokens exist as ERC-20 (Ethereum) tokens. This affects liquidity pools, wallet storage, trading volume and ease of exit from USDT. This benefits traders as it provides them with multiple options – should they decide to transfer on one blockchain or another. The chart below shows a breakdown of USDT distribution across the Ethereum, Omni and Tron blockchains.

Table1 (Source)

Where should USDT be stored?

Every trader has different needs with consideration for accessibility, security and privacy. A brief framework to help understand the trade offs is as follows – Is the storage custodial or non-custodial? Is the storage in hot or cold wallets?

The custodial option would be storing USDT on an exchange, such as Bybit, which enables traders with instant access to trading opportunities so a trader may enter and exit a position rapidly. The trade off is that users may sacrifice privacy and security control for convenience.

A non-custodial storage option, such as ShapeShift, a non-custodial decentralized exchange,  enables a trader with smaller liquidity pools so the option to enter and exit positions still exists, but with increased price slippage. However, this provides users with security and trust compared to a custodial exchange.

Another choice a trader makes with regard to storage is hot vs cold storage. Hot storage is the use of a web-based wallet where applications are directly connected to the internet. Cold storage includes the use of hardware wallets and paper wallets such as Ledger and Trezor, which provide the ultimate forms of privacy and security, but lack the trading benefits provided by large exchanges. Some trading platforms such as Bybit use more advanced institutional grade cold storage solutions.

As seen from the bar graph below, Omni traders prefer storing their USDT off exchanges by nearly a 2:1 rate while Tron traders prefer to hold their USDT on exchanges. ERC-20 traders appear to be evenly split.

Table 2 (ERC-20 Source) (Tron Source) (Omni Source)

Among peers Binance holds the most USDT

Consider the data collected below from five of the top cryptocurrency exchanges. We can see that Binance and Huobi hold the most USDT by a large margin.

Table 3 (ERC-20 Source) (Tron Source) (Omni Source)

Where are the whales?

A “whale” address is considered a non-exchange address that holds enough tokens to be within the top 40 addresses. Whales are known for being market movers by being able to unload or pump large amounts of tokens and overwhelm order books. They are largely more influential by means of governance voting, small market cap tokens, staking and other means. 

Stablecoins are not a high-risk target for whales as they are designed to withstand price movement action, which is a primary goal for whales. However, it’s good to be aware of distribution and token centralization. Here is a breakdown of non-exchange USDT whales.

Table 4 (ERC-20 Source) (Tron Source) (Omni Source)

Trading volume speaks volumes.

The data below shows some trader preferences. Based on reported data from CoinMarketCap traders utilize USDT over bitcoin and other top cryptocurrencies. USDT trading pairs have significantly higher volume than most cryptocurrency trading pairs, even BTC pairs.

Bitcoin, USDT and BTC/USDT Trading Volume

Table 5 (Source)

BTC/ETH and USDT/ETH Trading Volume

Table 6 (Source)

BTC/EOS and USDT/EOS Trading Volume

Table 7 (Source)

BTC/XRP and USDT/XRP Trading Volume

Table 8 (Source)

Don’t trust, verify.

Looking at the on chain total transaction numbers, Bitcoin still has many times more transactions than USDT. There’s a few plausible explanations for this. Bitcoin has over 5 years additional history than USDT. The early years of bitcoin transactions were almost solely on chain, while USDT started in late 2014 and many transactions happened on centralized exchanges since then. (Source)

Table 9 (ERC-20 Source) (Tron Source) (Omni Source) (BTC Source)

Tether offers deep trading pools, protection from volatility and transparency.

Traders have a valuable resource in USDT as a means of seeking and protecting profits. The ability to quickly trade a top cryptocurrency for a stablecoin like USDT allows for short and long-term trading strategies. The volatility from wild price swings provides a unique safe haven for market movements. 

To learn more about USDT, please visit the Tether website.

To learn more about Bybit BTCUSDT contract, please visit here. You may also visit Asset Exchange to exchange USDT with other cryptocurrencies.

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