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What is the token economics of Tether Tokens
There are multiple Tether Tokens pegged to US dollars (USDT), Euros (EURT), Mexican peso (MXNT), British Pound Sterling (Tether GBP), and offshore Chinese yuan (CNHT).
Token economics (tokenomics) studies the design and implementation of blockchain-based tokens. Understanding token economics is crucial for anyone considering investing in or using a particular token.
This post covers the token economics of the various Tether Tokens.
1. A quick introduction to Tether Tokens
Tether Limited, a Hong Kong company, founded tether in 2014. Its first and most famous token is USDT - a cryptocurrency pegged to the US dollar.
Today there are multiple Tether Tokens pegged to US dollars (USDT), Euros (EURT), Mexican peso (MXNT), British Pound Sterling (Tether GBP), and offshore Chinese yuan (CNHT).
Tether tokens exist on several blockchains - Algorand, Avalanche, Bitcoin Cash’s Simple Ledger Protocol (SLP), Ethereum, EOS, Liquid Network, Omni, Polygon, Tezos, Tron, Solana, and Statemine.
2. Issuance & Emission of Tether Tokens
Token issuance is the creation and distribution of tokens as part of a specific event or offering e.g. airdrop, ICO, reverse ICO, IEO, IDO, DAICO, ETO, STO, and SAFT. Token emission is the ongoing process of creating and releasing new tokens into circulation e.g. through mining or staking.
Tether fiat-pegged cryptocurrencies follow a burn & mint model.
The issuance & emission of tokens is controlled by Tether Limited and is based on market demand, with new tokens being created when demand increases and tokens being destroyed when demand decreases.
New tokens are created when users deposit fiat currency into bank accounts operated by Tether Limited.
Tokens are destroyed when users redeem them. For this, users send tokens to an address controlled by Tether Limited. who then destroys the tokens and transfers fiat currency to the user's bank account.
Tether publishes irregular reports on its consolidated reserves. The latest report as of the date of writing (2 Feb 2023) was issued on 30 Sep 2022.
According to this report, Tether reserves comprise U.S. Treasury Bills, Commercial Paper & Certificates of Deposit, Money Market Funds, Cash & Bank Deposits, Reverse Repurchase Agreements, Non-U.S. Treasury Bills, Corporate Bonds, Funds & Precious Metals, Secured Loans, and other investments.
Tokens derive value from the utility of the network that they are used in. In other words, the value of a token is determined by how useful it is within the specific ecosystem in which it is used. This can be based on a variety of factors, such as:
the size and activity of the network,
the demand for the goods & services that can be purchased with the token, and
the perceived value of the network to its users.
As the utility of the network increases, the value of its associated tokens is likely to increase as well.
Use cases of Tether Tokens
Tether Tokens are widely used as trading pairs on cryptocurrency exchanges.
Tether Tokens are used as a means of remitting funds between countries, allowing for quick & inexpensive transfers that are not subject to the same fees & restrictions as traditional remittance methods.
Tether Tokens can be used to pay for goods & services from various merchants that accept cryptocurrency payments.
Tether Tokens can be used as a hedge against the volatility of other cryptocurrencies, providing a means of holding value without exposure to price swings.
Tether Tokens can be used by market makers & traders to provide liquidity to cryptocurrency exchanges, helping to ensure that trades can be executed quickly and efficiently.