As is the case with most currencies, to truly understand a coin one must first know what purpose it fulfills, and with the case of the TUSD, one of the widest-used stablecoins on the market, knowing what it is, and adding it to your portfolio, is a must!
What exactly is Tether?
Tether, a stablecoin, mirrors the value of a USD by holding enough reserves to back the supply. In the volatile crypto markets, this helps investors to trade in and out of currencies with more control of their money.
Much like DigiXDAO, Tether uses a Proof-Of-Assets system to validate every US Dollar in their reserves. This reserve is periodically audited by professionals and aims to protect customers from a drop in the value of their supposed dollar standard.
How do Stablecoins like Tether allow hedging?
Stablecoins, essentially, act as insurance for your cryptocurrency portfolio, ensuring it doesn’t fall too much in value.
One great strategy to fully use stablecoins is heavily adopted by day-traders:
When you’re done trading for the day, you can convert your altcoins into stablecoins to ensure they do not lose value overnight. While this protects you from quick drops in price, this strategy also prevents you from making passive gains. Such a strategy should only be employed after considering your perception of the market.
Converting altcoins to stablecoins allow you to maintain portfolio value overnight, saving you from losses, but also stopping you from making passive gains.
Why do you need Tether?
In a market infamous for volatilities, the real question isn’t who needs stablecoins… it’s who doesn’t?
HODLers of BTC and other altcoins know all too well the pains that came with 2018. BTC, along with most other cryptocurrencies saw a drastic fall in value. All while coins like the USDT barely fluctuated from their Dollar Standard.