What is USDT and how does it work?

USDT (Tether) is fascinating because it should not work, and it works incredibly well. It is the largest stablecoin in the world by market capitalization, the most-used dollar-denominated trading pair on global exchanges, and one of the largest non-sovereign holders of US Treasury bills. It is also the stablecoin that has spent the longest in the regulatory and journalistic crosshairs. The combination is worth studying.

Tether (the company) was founded in 2014 as one of the first attempts to put dollars on a blockchain. The original design was simple: each USDT in circulation was supposed to be backed by one dollar held in reserve. For most of its first eight years, those reserves were opaque. Tether did not publish full audits. They paid an $18.5 million settlement to the New York Attorney General in 2021 over misrepresentations about the reserve composition, and a $41 million CFTC settlement that same year. The reserves were not always cash; at various points they included commercial paper, secured loans, and other instruments that some critics argued did not actually back the peg one-to-one.

Through all of this, USDT held its peg. The few brief dislocations resolved quickly. By 2024, Tether's reserves had shifted substantially toward US Treasury bills — the company now holds more US Treasuries than the sovereign nations of Germany, Australia, and the United Arab Emirates. Tether's quarterly attestations show reserves consistently above one-to-one backing. The company is profitable, by some measures more profitable per employee than any other financial institution on earth.

The reasons USDT continues to dominate despite USDC's better regulatory positioning are worth understanding. First, USDT has deeper liquidity on global exchanges, particularly in Asia. For traders in markets where USDC is harder to acquire (Korea, Vietnam, Nigeria, Argentina), USDT is the on-ramp. Second, USDT is the dominant settlement asset for dollar transfers in jurisdictions where US-regulated channels are difficult to use. Cross-border payments by individuals and small businesses in emerging markets often route through USDT for this reason. Third, the network effect of being first and largest produces a self-reinforcing dynamic: every new exchange adds USDT first because that is what users want.

The risks are real and worth pricing in. Tether's reserves have improved in transparency but are not audited at the same standard as USDC. The company is regulated less stringently. The risk of a future enforcement action, regulatory shock, or operational failure exists. The history of paid settlements suggests the regulatory tension is not fully resolved.

The relationship between Tether and the US Treasury market is one of the most underreported financial stories of the last five years. Tether is among the largest buyers of new Treasury issuance globally. The growth of stablecoins broadly has created meaningful new structural demand for short-duration US sovereign debt — a fact that is starting to factor into Treasury issuance strategy and that has policy implications beyond crypto.

The literate position on USDT: read the texture, understand the dynamics, form a view about whether you want to hold it. For most users, USDC is the cleaner choice on regulatory grounds. For users operating in markets where USDT is the dominant rail, the calculus is different. And anyone trying to understand the global dollar system in 2026 needs to understand Tether — because Tether is now a meaningful node in that system.