What Is USDT and How a Stablecoin Works, in Plain Words

USDT (Tether) is a stablecoin: a digital token that its issuer tries to keep at 1 US dollar. Unlike bitcoin or ether, whose price can swing sharply, USDT is built so that its rate stays almost constant. That is why it is widely used as "digital dollars" in P2P trading.

How USDT keeps its price close to the dollar

The issuer, the company Tether, creates tokens and states that they are backed by reserves in dollars and other assets. The idea is simple: if in theory you can get a dollar for every token, its price should not stray far from 1 dollar. In practice the market rate wobbles slightly around that mark.

Why USDT is popular in P2P

• Stability. By buying USDT you do not risk the coin losing 5% in an hour, as happens with bitcoin.
• Transfer speed. The token moves between exchanges and wallets in minutes, regardless of borders and banking hours.
• Liquidity. It is one of the most traded tokens, so P2P marketplaces always have plenty of ads.
• Easy exchange. USDT is easy to swap for hryvnia, zloty, euro and other currencies, which is what P2P rates rely on.

USDT, USDC and other stablecoins

Besides USDT there are other stablecoins, such as USDC issued by Circle. They are also pegged to the dollar but differ in issuer, reserve transparency and availability on exchanges. In P2P, USDT is used most often, so most ads and prices you see in MetaRates concern it.

Risks worth knowing

• De-peg risk. The rate may temporarily drift from 1 dollar, especially in moments of market panic.
• Issuer risk. A stablecoin's reliability depends on the company and its reserves.
• Regulatory risk. Rules for stablecoins differ between countries and change.
• Transfer mistake risk. A wrong network or address can lead to losing funds (see USDT networks).

USDT does not pay interest by itself and is not a bank deposit: it is a token you hold directly.

This material is for information only and is not financial advice.