How the Tether USDT Token Works

In the dynamic world of cryptocurrency, where digital assets often experience significant price volatility, Tether tokens stand out as a stabilizing force. Tether tokens are a unique breed in the blockchain ecosystem, designed to bridge the gap between decentralized cryptocurrencies and the stability of traditional fiat currencies.

Understanding Tether Tokens

Launched in 2014, Tether tokens (USDT) pioneered the stablecoin model and remain the most widely traded digital currency in the market. Unlike typical cryptocurrencies, Tether tokens maintain a 1:1 peg to fiat currencies (e.g., 1 USD₮ = 1 USD) and are 100% backed by Tether’s reserves.

Key Features:

• Stability: Tether tokens derive their stability from their peg to fiat currencies, offering traders and merchants a low-volatility solution.
• Supported Currencies: USD (USD₮), EUR (EUR₮), MXN (MXN₮), and CNH (CNH₮).
• Multi-Blockchain Support: Algorand, Avalanche, Bitcoin, Ethereum, EOS, Kava, Polkadot, Polygon, Solana, TRON, and Tezos.

Key Considerations Before Getting Started

This guide provides a detailed examination of the Tether token (USDT) code deployed on Ethereum. To fully grasp the concepts discussed, familiarize yourself with:

• ERC-20 Token Standard
• ERC-20 Token Implementation

Deep Dive into Tether (USDT) Code

The Tether token code, deployed on Ethereum, is available on Etherscan. Below is a breakdown of its core components:

SafeMath Library

A utility library for arithmetic operations with built-in overflow checks.

library SafeMath {
    function mul(uint256 a, uint256 b) internal pure returns (uint256) {
        if (a == 0) return 0;
        uint256 c = a * b;
        assert(c / a == b);
        return c;
    }
    // ... (div, sub, add functions)
}

Ownable Contract

Manages contract ownership and administrative permissions.

contract Ownable {
    address public owner;
    modifier onlyOwner() { require(msg.sender == owner); _; }
    function transferOwnership(address newOwner) public onlyOwner {
        if (newOwner != address(0)) owner = newOwner;
    }
}

ERC20Basic and ERC20 Contracts

Implement the ERC-20 token standard, including methods like transfer, approve, and events like Transfer.

BasicToken and StandardToken Contracts

• BasicToken: Implements core ERC-20 functions (transfer, balanceOf).
• StandardToken: Extends BasicToken with allowance-based functions (transferFrom, approve).

Pausable Contract

Enables an emergency stop mechanism to freeze transactions.

contract Pausable is Ownable {
    bool public paused = false;
    modifier whenNotPaused() { require(!paused); _; }
    function pause() public onlyOwner whenNotPaused { paused = true; }
}

BlackList Contract

Manages a list of blacklisted addresses to restrict malicious actors.

contract BlackList is Ownable {
    mapping (address => bool) public isBlackListed;
    function addBlackList(address _evilUser) public onlyOwner {
        isBlackListed[_evilUser] = true;
    }
}

Upgradeable Pattern

Tether tokens can be upgraded via the UpgradedStandardToken contract, ensuring future-proofing and bug fixes.

contract UpgradedStandardToken is StandardToken {
    function transferByLegacy(address from, address to, uint value) public;
}

TetherToken Contract

The main contract combining all features:

contract TetherToken is Pausable, StandardToken, BlackList {
    string public name = "Tether USD";
    string public symbol = "USDT";
    uint public decimals = 6;
    function issue(uint amount) public onlyOwner { /* Mint new tokens */ }
    function redeem(uint amount) public onlyOwner { /* Burn tokens */ }
}

Upgradeable Pattern: Hands-On Demonstration

1. Deploy TetherToken: Initial contract with the legacy code.
2. Deploy UpgradedStandardToken: New contract with updated logic.
3. Deprecate Legacy Contract: Call deprecate(upgradedAddress) to forward calls to the new contract.

👉 Learn more about upgradeable contracts here

FAQs

What is Tether (USDT)?

Tether is a stablecoin pegged 1:1 to fiat currencies like the USD, designed to minimize volatility.

How is Tether different from Bitcoin?

Unlike Bitcoin, Tether maintains a stable value by being backed by reserves, making it ideal for trading and hedging.

Can Tether tokens be upgraded?

Yes, Tether uses an upgradeable pattern to allow future improvements without disrupting existing tokens.

👉 Explore Tether’s blockchain integrations

Further Exploration

• How to Develop Smart Contracts with Hardhat
• Creating Your Own Cryptocurrency
• Upgradable ERC-20 Contracts

Conclusion

Tether’s smart contract design exemplifies stability, transparency, and adaptability in blockchain technology. By leveraging upgradeability and robust security features, Tether remains a cornerstone of the decentralized finance ecosystem.