USDT: The "dollar substitute" in the encryption world, why is it so popular?

Do you have USDT in your hand? This has now become an indispensable presence in the crypto market. Simply put, USDT is the stablecoin issued by Tether, with 1 USDT always pegged to 1 USD, and it can be used on multiple chains such as Ethereum, Tron, and Solana.

How Heavy is Your Status? The Numbers Speak.

As of January 2024, USDT ranks third in market capitalization globally, only behind Bitcoin and Ethereum. Sounds impressive, right? But the story behind it is not that simple.

2023 is a big year for USDT. The issuance of USDT on the Tron chain soared to 22.75 billion, and the market share grew by 2.6% in the third quarter of the same year. Particularly striking is that data from the Brazilian tax authority shows that 80% of crypto transactions in the country are settled using USDT, which has almost become the standard for trading in South America.

Why is it so stable?

The core mechanism is “reserves”. Tether claims that for every 1 USDT issued, an equivalent amount of US dollars is held in reserve in a bank account. In June 2023, they announced $86 billion in assets to support the issuance of $83 billion in USDT. Even the CEO of Cantor Fitzgerald came out in January to endorse it: “What they say is true, the money is indeed there.”

This is completely different from other stablecoins that rely on algorithms for stability—USDT is centralized + fiat-backed, which is also the main reason it can maintain its position.

Why is this thing being criticized?

The biggest sticking point is the transparency issue. Tether initially stated it was “1:1 cash reserves”, but later, under legal pressure, changed its tune to say it also includes “non-cash assets” (such as bonds, loans, etc.). This change of statement has made many people feel uneasy.

Moreover, centralized structures themselves attract criticism. Crypto loyalists tend to prefer completely decentralized solutions and are inherently averse to Tether's “centralized company decision-making” model.

How to move forward?

Forbes predicts that 2024 will be the breakout year for stablecoins. What is the background? Tether is advancing the transparency of reserve audits, the American Institute of CPAs is developing auditing standards for stablecoins, and institutional investors' interest in USDT is at an all-time high—especially after the approval of Bitcoin ETFs and Ethereum ETFs.

The use of USDT is also expanding: DeFi lending, cross-border payments, and even everyday consumption (such as paying for electricity, online shopping) are all possibilities. As long as Tether can collaborate with more financial institutions, there is still a large space for its application.

Summary in One Sentence

USDT is the “stable anchor” of the crypto market - one end connected to the wildly fluctuating coin world, and the other end connected to the real fiat currency world. Although there are many controversies, there seems to be no possibility of it being replaced in the short term.