What is USDT? How Tether's stablecoin works, and its risks

USDT is a stablecoin issued by Tether: a crypto token that aims to track the US dollar, so that one USDT is meant to be worth $1 instead of rising and falling like most crypto. Tether says each USDT is pegged 1-to-1 to the US dollar and backed by its reserves. People hold it to keep a USD value in crypto, and send it across borders on blockchains such as Tron and Ethereum.

That's the short answer to "what is USDT?" The rest of this guide explains how a stablecoin works, where USDT lives, the risks that come with it, and how Peppy holds it.

What is a stablecoin?

Most crypto has a price that moves all day. A stablecoin is a token built to hold one steady value, usually by tracking a currency such as the US dollar. For a stablecoin like USDT, a company called the issuer creates the tokens and says it holds reserves to back them.

On a blockchain, a stablecoin moves like any other token: from one address to another, with a network fee paid by whoever sends it. The difference is the aim. One USDT is meant to be worth $1 today, next month and next year.

Who issues USDT?

Tether does. It describes its tokens as "pegged to real-world currencies on a 1-to-1 basis" and says USDT is "backed 100% by Tether's reserves". It publishes information about those reserves on its own website. You'll also see USDT written as USD₮, or simply called Tether.

Is USDT the same as a US dollar?

No. USDT aims to track the US dollar, but it's a token issued by a company, not money issued by a government. Tether's own terms say its tokens "are not legal tender and are not backed by any Government". What keeps USDT near $1 is Tether's reserves and people's trust in them.

In Peppy, a USDT balance shows in USDT. The wallet page also adds all your balances into one total in USD, and that total is an estimate, not a quote.

Which networks does USDT run on?

Many. Tether issues USDT on a long list of blockchains, Ethereum and Tron among them.

Each network keeps its own USDT. USDT sent on Tron arrives only at a Tron address, and USDT sent on Ethereum arrives only at an Ethereum address, so the network matters as much as the address does.

Peppy supports two of them: Tron, where USDT is a TRC-20 token, and Ethereum, where it's an ERC-20 token. USDT on Tron or Ethereum explains how to tell them apart and which coin pays each network's fee.

What do people use USDT for?

Holding a USD value. Someone who wants crypto that aims to stay at $1, rather than a coin whose price swings, can hold USDT.
Sending money across borders. A USDT transfer goes from one address to another wherever their owners live. It settles on the network, with no bank in the middle.
Getting paid. Freelancers and businesses with clients abroad can be paid in USDT by sharing a receiving address.

Each transfer pays a network fee in the network's own coin: TRX on Tron, ETH on Ethereum. That's why sending USDT also takes some TRX or ETH, and why you need TRX to send USDT explains how it works.

What are the risks of USDT?

USDT is built to stay steady, but it carries risks of its own. Three matter most.

It can lose its dollar value

A stablecoin's $1 value depends on people trusting its issuer to back it. When that trust cracks, the price can fall. In March 2023, several dollar stablecoins dropped below $1 over a single weekend, one as low as 86 cents. A Federal Reserve note on that weekend found that stablecoins "are susceptible to crises of confidence, contagion, and self-reinforcing runs".

Its issuer can restrict tokens

Tether's terms let it freeze tokens and block addresses that hold them, for example when a government directs it to. USDT at a frozen address can't be moved, whichever wallet the address belongs to.

Transfers can't be reversed

Tether's terms say it plainly: "Tether Token transactions are not reversible." Once the network confirms a transfer, nobody can pull it back, so the address and the network have to be right before you send. Scammers count on that, so how to avoid crypto scams is worth reading too.

How does Peppy hold USDT?

Peppy is a custodial wallet: Peppy holds the keys to your addresses and signs the transfers you approve. Here's what that looks like in the app:

Two balances. USDT · Tron and USDT · Ethereum, each at its own address, with the network named at every step.
Keys kept apart. The keys to your Tron and Ethereum addresses live in a separate signing service, apart from the website, and every transfer is checked against the blockchain.
Only real USDT. Peppy counts USDT from Tether's own contract on each network. A token that borrows the name doesn't show in your balance.
Your PIN on every send. The review screen shows what the recipient gets, Peppy's fee (0.5%, at least $0.50, on sends to an outside address), the network fee and the total. Nothing moves until you approve with your PIN.
Free to hold and receive. Opening an account, holding USDT and creating a receiving address are free.
No interest. Peppy doesn't pay interest on any balance.

To get USDT into Peppy, you receive it at your own address. How to receive USDT walks through it.

Good to know

USDT aims to track the US dollar, but it isn't a bank deposit, and Peppy is not a bank.
A stablecoin can lose its dollar value, and its issuer can restrict tokens.
Blockchain transfers can't be reversed. Check the address and network every time.

Want to hold USDT on Tron and Ethereum? Open a wallet with your email address. It's free to open.