Quick take
- USDT is a token issued by Tether that aims to be redeemable for one US dollar.
- Arbitrage between the market price and Tether's $1 redemption keeps USDT near its peg.
- Always match the network (TRC20, ERC20 and others) when sending; mistakes can be permanent.
How a dollar token is made
When a large, verified customer sends dollars to Tether, Tether mints new USDT and sends it to them. When a customer returns USDT, Tether sends dollars back and burns the tokens. Tether invests the money it receives, mainly in short-term US government debt according to its reports, and earns the interest.
Why the price stays near $1
Most people buy and sell USDT on exchanges rather than with Tether directly. If USDT trades below $1 on an exchange, large traders can buy it cheaply and redeem it with Tether for a full dollar; if it trades above $1, they can mint new USDT and sell it. That arbitrage pulls the market price back toward $1, as long as people trust that redemption will work.
Networks: same token, different roads
| Network | Address looks like | You pay fees in | Commonly used for |
|---|---|---|---|
| Tron (TRC20) | Starts with T | TRX, or network "energy" | Cheap transfers between exchanges |
| Ethereum (ERC20) | Starts with 0x | ETH gas | Ethereum wallets and apps |
| Other chains | Varies | That chain's native coin | Specific apps and exchanges |
Where the risks are
- The issuer: USDT is only as good as Tether's reserves and its willingness to redeem. Tether publishes quarterly attestations of its reserves, which check balances at a point in time but are narrower than a full audit.
- History: in 2021 the US Commodity Futures Trading Commission fined Tether $41 million over past statements about its reserves.
- De-pegs: USDT has dipped below $1 during market panics, briefly falling to around $0.95 in May 2022 before recovering.
- Freezes: Tether can freeze USDT at specific addresses, often at the request of law enforcement.
- Rules: under the EU's MiCA regulation, several exchanges restricted USDT for European users.
Using USDT sensibly
Treat USDT as a tool for moving value between exchanges, not as a savings account. It carries no deposit insurance, and holding it on an exchange adds that exchange's risks on top. For how people acquire it, see how to buy USDT safely; for alternatives such as USDC, see stablecoins explained.
Common questions
Is USDT backed one to one?
Tether says its reserves exceed the USDT in circulation and publishes quarterly attestations. Holders are relying on those reports and on Tether's ability to meet redemptions.
Why do scammers ask for USDT?
Transfers are fast, cross borders easily and are hard to reverse, which is why fraudsters favour it. A request to pay in USDT is a warning sign on its own.
Which network should I use to send USDT?
Whichever one the receiving wallet or exchange supports. TRC20 is often cheaper, but the only correct choice is a network the recipient accepts.
Sources
- Tether, quarterly reserve attestation reports
- U.S. Commodity Futures Trading Commission, Tether settlement order (October 2021)