How Does Tether Work? USDT Reserves, Minting and Redemption
Lesson 2 of 9 · Beginner
What is Tether and who is behind it?
Tether (USDT) is the world’s largest stablecoin: a token issued by the company Tether, with each unit meant to be worth one US dollar. USDT is a centralised, reserve-backed stablecoin. A specific company creates it, holds the reserves and controls the token’s smart contract. According to a Crypto-Economy report in October 2026, USDT supply was about 184 billion dollars.
USDT is issued on several blockchains, including Tron (TRC20) and Ethereum (ERC20). Each version has its own contract, but one company issues them all. So when we say “Tether” we are really talking about several tokens with the same name on different networks, which can be converted into one another only through the issuer or through bridges.
The key difference from Bitcoin is that Bitcoin has no issuer, while Tether depends entirely on the decisions, the reserves and the relationships with banks and regulators of its issuer. Anything that affects the company affects the token.
Minting and redemption: the loop that holds the peg
The core cycle is simple:
- Minting: an approved Tether customer, usually an exchange, market maker or large firm that has passed verification with the issuer, sends dollars to the company’s bank account. Tether creates the same amount of new USDT and sends it to the customer’s address.
- Redemption: the approved customer returns USDT to the issuer, the tokens are taken out of circulation or burned, and dollars go back to the customer’s bank account.
This route is effectively closed to small users: minimum amounts are high and verification is strict. An ordinary user buys Tether on an exchange, peer to peer or from another seller, which means in the secondary market.
This is how the peg is defended. If USDT falls below a dollar on the global market, holders with redemption access buy it cheaply and redeem for one dollar; if it rises above, they mint fresh tokens and sell. That arbitrage keeps the price near one dollar, provided the market believes in redemption.
Reserves: attestation or audit?
Every stablecoin issuer claims to hold enough assets against each token. What matters is what kind of report supports that claim:
| Attestation | Full audit |
| An accounting firm confirms that the stated assets existed at one specific moment. | Internal controls, liabilities, risks and financial statements are examined over a full period. |
| It is a snapshot; anything between two reports is not covered. | It gives deeper assurance but costs more and takes longer. |
Tether publishes periodic attestations, and according to these reports a large part of its reserves sits in short-term US Treasury bills and cash equivalents, alongside other assets. When you read a report, ask three questions: what type of report is it, what is its date, and what share of the reserves is in less liquid assets?
Why does the price of USDT move?
On the global market USDT usually trades very close to one dollar, but on stressful days it can briefly sit a little above or below, because arbitrage is only available to those with minting and redemption access, and it takes time.
On local markets the story can be different. Where USDT is traded against a local currency, its price is roughly the local market dollar rate plus the effect of local restrictions. For example, according to Rokna, USDT traded at about 264,000 tomans in Iran on 12 October 2026. Factors that move such a price include:
- inflation expectations and the free-market dollar rate;
- limits on the local-currency payment gateways of exchanges; according to Crypto Briefing, in late September 2026 Iran’s central bank temporarily imposed a daily cap of 2,000 USDT per user and an overnight trading halt, and on 3 October 2026 it was reported to plan blocking the rial accounts of several large exchanges;
- thin order books at low-volume hours.
So “USDT = dollar” is only approximate; both the issuer and local rules affect what it is really worth to you. Users in sanctioned regions should also keep jurisdiction and compliance risk in mind.
“Flash USDT” and counterfeit tokens
Because USDT is in such demand, many scams have grown around it. One of the most common is “flash USDT”: a fake or temporary token that appears in the victim’s wallet under the name and symbol USDT, is usually sold at a “discount”, and is worth nothing. Any offer to sell USDT below the market price is a sign of fraud.
A few simple principles:
- Anyone can fake a token’s name and symbol; the only thing that counts is the official contract address published by the issuer.
- Real USDT is never sold “cheaper than market” or “with an expiry date”.
- “Free USDT”, “USDT mining” and guaranteed fixed returns are well-known bait.
Another risk is peer-to-peer buying from strangers on social messaging apps. If the cash payment comes from a third party’s account, or is meant to go to one, you may be part of a chain of rented bank accounts used for money laundering and fraud. Even an unaware buyer or seller can then be drawn into an investigation and have their account frozen.
In the lesson on network fees you will learn how to check a token’s contract in a block explorer.
Common mistakes
- Thinking every USDT holder can convert it directly to dollars with the issuer.
- Treating a point-in-time attestation as a full, ongoing audit.
- Assuming the local-currency price of USDT equals the global dollar and ignoring local restrictions.
- Trusting the name and symbol shown in a wallet instead of checking the contract address.
- Buying USDT below market price because it looks like an opportunity; this is the flash-USDT pattern.
What do volume and data say here?
Much of the data on Tether is public and you can check it yourself:
- Minting and burning: on each network’s explorer (such as Tronscan or Etherscan) you can see the issuer’s minting and redemption transactions. A wave of minting usually means fresh demand from large clients, but minting does not necessarily mean money is about to flow into crypto purchases.
- Total supply per network: changes in supply on each chain show where users are most active.
- Local price gaps: compare USDT prices on several local exchanges with the free-market dollar rate. A sudden gap together with a jump in volume usually points to liquidity pressure or a regulatory headline, not to a change in the value of Tether itself.
These numbers are tools for understanding, not buy or sell signals.
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Frequently asked questions
What is Tether in simple terms?
It is a stablecoin issued by the company Tether, with each unit meant to be worth one US dollar. It is backed by reserves the issuer holds, and the issuer also controls the token’s contract.
Is USDT really backed by reserves?
Tether publishes periodic attestations of its reserves. These are snapshots, not a full audit, so issuer risk is never zero.
Why can the local price of USDT differ from the global dollar price?
Because in many countries the local price is effectively the local-market dollar rate, and local supply and demand, limits on payment gateways and central bank decisions all feed into it.
Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.