Tether (USDT) Explained: Stablecoin Risks, Uses, and What Happens When It Goes Wrong

When you trade crypto, you’re often not trading Bitcoin or Ethereum—you’re trading Tether, a digital token pegged to the US dollar that lets traders move in and out of riskier assets without touching cash. Also known as USDT, it’s the glue holding most crypto markets together. Almost every exchange, from Binance to small P2P platforms, uses Tether as the default trading pair. But here’s the problem: no one really knows if Tether has enough dollars to back every USDT in circulation.

Tether isn’t like a bank account. It’s a company, Tether Limited, that claims to hold reserves for every token it issues. But those reserves? They’ve included commercial paper, loans, and even crypto assets—not just cold, hard cash. In 2021, Tether paid $41 million to settle a New York AG lawsuit over misleading claims about its reserves. Since then, it’s improved transparency slightly, but the core question remains: if everyone tried to cash out USDT at once, would there be enough dollars to go around? That’s not just a theory—it’s a real risk, and it’s why some traders avoid holding large amounts of USDT long-term.

What makes Tether even more complicated is how it’s used. In countries like Nigeria and Iran, where banks block crypto, traders use USDT to bypass controls. In North Macedonia, where crypto is officially banned, USDT flows through Telegram groups and local P2P sellers. It’s the same token that powers DeFi lending on Ethereum and the same one that gets dumped during market crashes. It’s both a safe harbor and a ticking time bomb.

And then there’s the ripple effect. When Tether’s price drops below $1—even for a few minutes—it triggers panic. Exchanges freeze withdrawals. Traders scramble. Airdrops tied to USDT liquidity pools vanish. Projects like World Liberty Financial (WLFI) and USD1 stablecoin tried to copy Tether’s model, but none have matched its scale. Why? Because Tether isn’t just a token—it’s a system built on trust, opacity, and sheer market dominance.

Below, you’ll find real stories about what happens when stablecoins fail, how people use Tether in banned markets, and what to do when the peg slips. These aren’t theoretical debates—they’re lessons from traders who lost money, found loopholes, or walked away completely. If you trade crypto, you’re already using Tether. The question is: do you really understand what you’re holding?