Table of Contents
- Tether is a cryptocurrency which is tied to a fiat currency such as the USD or physical assets like gold.
- Tether earns money through various fees. It issues loans to other institutions and invests.
What Is Tether (USDT)?
Tether is a cryptocurrency type that can be pegged to fiat currencies as well as physical assets like gold.
These cryptocurrencies are called stablecoins. Tether’s most well-known stable coin, USDT, is short for the United States Dollar Tether. Other stablecoins can be pegged to the Euro, Chinese Yen and gold (XAUT).
Tether, therefore, has the equivalent amount in its reserves of the given cryptocurrencies. Tether has the equivalent amount of USDT, with close to $80 trillion in circulation. Each USDT can be exchanged for the equivalent amount of U.S. dollars that Tether holds.
Tether and other stablecoins are used primarily for trading on cryptocurrency exchanges. Tether can be purchased on nearly every major exchange, including Coinbase and Binance.
The company also provides a solution to merchants that allows them to accept payments from customers for their products or services.
Tether can be traded on a number of blockchains. It started as a ledger on Bitcoin’s blockchain (vis-a-vis the Omni Layer) but has since expanded to other chains like Tron (TRX), Tron (ETH), Solana (SOL) and many others.
How Does Tether Make Money?
Tether (USDT) earns money through various fees. It issues loans to other institutions and invests.
Let’s have a closer look at each revenue stream in the section below:
How Does Tether (USDT) Make Money?
Tether’s revenue comes in the form of account verification fees and deposit/withdrawal fees.
Each customer who wants their account verified will be charged $150 Tether requires verification to withdraw and deposit cash.
Tether charges withdrawal and deposit fees in addition to its verification fee. Tether users can only transact direct if they have deposited at least $100,000.
Tether charges a deposit fee of 0.1%. Withdrawals are subject to a similar fee structure. A minimum withdrawal fee is $1,000.
This means that even if a customer withdraws $200,000, which is theoretically equal to a $200 charge, he or she still pays $1,000.
Tether does not charge fees for money transfers between accounts, unlike banks and other financial institutions.
Instead, fees are charged by exchanges like Coinbase and FTX. Users also need to pay gas fees for the blockchain transactions they make.
Further, Tether makes its money by issuing loans to other companies and institutions, which then pay interest.
Tether, for example, loaned $1 Billion to Celsius Network in October 2021. Celsius Network is a cryptocurrency lender.
Alex Mashinsky, the CEO of Tether, came out days later to confirm that Celsius would pay 5 to 6 per cent interest per annum. Tether could generate $50 million to $60 million per year just from this transaction.
Tether came under fire in September 2021 when it was revealed that it had also lent billions to large Chinese companies. This is often avoided by money market funds because of the higher risk.
Tether is known to be the riskiest business when it comes to lending cash to companies that are not able to repay their loans. Tether must have the reserves necessary to meet any demand if large numbers of Tether holders decide at some point to cash out their stablecoins.
If a larger number of its borrower’s default, the company might not be able to fulfil those withdrawal requests.
Tether also makes a small amount of revenue by investing in other businesses and contributing to their growth.
Exordium, a company that focuses on the development of blockchain games, was one example. Exordium was its $1 million investment in January 2021. It was granted a pro-rata share of Exordium’s profits.
Other exchanges like Coinbase and Binance are great places to invest in crypto.
Tether can make money by either participating in the profits of the firm or selling its shares at a higher price than it was purchased.
This, like the loan programs, can present a risk to both the company and its customers. Tether could lose all its tokens if too many of its investments fail.