Tether (USDT) vs. Alloy by Tether (aUSD₮): A Comparison

Published September 23, 2024 2:53 PM

By Andrew Kamsky

Key Takeaways

Tether (USDT) is a fiat-backed stablecoin, while Alloy by Tether (aUSD₮) derives its value from physical gold reserves.
USD₮ aims for full transparency, backed by regular gold reserve audits.
USDT works for users who want a stablecoin for trading and making transactions. While aUSD₮ attracts investors who want to combine gold’s reliability with the convenience of blockchain.
The mechanics built into aUSD₮ say that aUSD₮ value will remain closely tethered to the U.S. dollar.

Tether (USDT): A Stablecoin Overview

Launched in 2014, Tether (USDT) has emerged as one of the leading stablecoins in the cryptocurrency market by 2024. Originally designed to provide liquidity for traders moving from volatile cryptocurrencies to a more stable asset, USDT is pegged to the U.S. dollar.

Tether’s utility has made the stablecoin a main player for trading pairs, settlements, and even day-to-day transactions. USDT is backed by a mix of traditional cash, cash equivalents, and other assets like commercial paper and secured loans, which are subject to scrutiny.

Alloy by Tether (aUSD₮): A Commodity-backed Stablecoin

Alloy by Tether (aUSD₮) takes stablecoins to the next level incorporating gold as the collateral.

Unlike USDT, which relies heavily (above 84%) on fiat currency reserves, aUSD₮ is backed by physical and digital representations of gold, specifically, Tether Gold (XAU₮) tokens. These tokens represent ownership of real gold, stored securely in Tether’s vaults.

What sets aUSD₮ apart is its dual role as both a stablecoin and an investment vehicle.

By pegging the value of aUSD₮ to the U.S. dollar through Tether’s innovative collateralized mechanism, aUSD₮ provides investors with the ability to hold digital assets while maintaining exposure to one of the world’s oldest and most trusted stores of value: gold.

This payment vehicle created by Tether could act as a hedge against inflation during severe economic downturns. While USDT may not perform as robustly, aUSD₮ offers a stable alternative backed by gold.

Additionally, Alloy by Tether uses an over-collateralization mechanism to ensure stability, where more assets are held in reserve than the aUSD₮ issued. For example, if 100 aUSD₮ are in circulation, Tether may hold $120 in assets, ensuring a safety margin to cover market fluctuations and maintain the peg.

Key Differences Between Tether (USDT) and Alloy by Tether (aUSD₮)

Stability Mechanism

Tether (USDT): Tethered to fiat currencies such as the U.S. dollar, USDT’s stability is directly linked to fiat reserves held in traditional financial institutions. This setup ensures a fixed value, closely mirroring the U.S dollar currency. However, instances of Tether depegging have raised concerns about its stability. For example, in May 2022, Tether briefly dropped to $0.95, temporarily losing its 1:1 peg to the U.S. dollar, highlighting potential risks in maintaining consistent value.
Alloy by Tether (aUSD₮): Unique in its dual-layer backing, aUSD₮ combines the stability of being tethered to the U.S. dollar with the reliability of gold through Tether Gold (XAU₮). This offers users the traditional security of gold and the predictable value of a stable fiat currency.

Backing Assets and Transparency

Tether (USDT): According to Tether’s latest reserves report , 84.24% of its reserves are held in cash, cash equivalents, and other short-term deposits. This includes 81.13% in U.S. Treasury Bills and smaller portions in overnight and term reverse repurchase agreements, money market funds, and bank deposits. The remaining reserves consist of 3.22% in precious metals, 4% in Bitcoin, 5.55% in secured loans, and 2.98% in other investments. Corporate bonds make up just 0.01% of Tether’s overall backing.
Alloy by Tether (aUSD₮): Backed by Tether Gold (XAU₮), aUSD₮ provides comprehensive transparency through regular audits of its gold reserves.

Use Cases and Target Markets

Tether (USDT): USDT serves as a stable conduit for cryptocurrency transactions, ideal for traders and investors who need to manage their exposure to crypto market volatility.
Alloy by Tether (aUSD₮): Targeted towards investors looking for secure assets during economic uncertainty, aUSD₮ is particularly suited to diversify investment portfolios with a gold-backed, stable digital asset that also acts as a hedge against inflation.

Features	Tether (USDT)	Alloy by Tether (aUSD₮)
Stability	Tethered to fiat currencies (USD)	Tethered to USD via gold collateral
Backing assets	Cash & Cash Equivalents & Other Short-Term Deposits	Tether Gold (XAU₮)
Transparency	Faced scrutiny and holds periodic audits	Gold reserve audits, higher transparency
Primary use	Trading, transactions	Investment in gold, hedging
Target Market	Broad crypto users	Gold and crypto investors

USDT vs. AUSD₮: Which One Is a Better Investment Option?

The choice between USDT and aUSD₮ depends on an investor’s financial objectives. USDT provides a simple and widely accepted stablecoin solution for traders who want to avoid crypto market volatility. It is liquid, widely available, and serves as a versatile trading pair on exchanges.

On the other hand, aUSD₮ offers exposure to gold, one of the most time-tested assets for preserving wealth .

Investors looking for an asset that can withstand global economic downturns may prefer aUSD₮, given its backing by Tether Gold. Additionally, the arbitrage opportunities between the market price and the vault price of aUSD₮ offer unique trading strategies for those familiar with price tether mechanics.

Conclusion

Tether (USDT) and Alloy by Tether (aUSD₮) both serve important but distinct roles in the cryptocurrency market. While USDT continues to be the go-to for those seeking a stable medium of exchange, aUSD₮ offers a more specialized approach, appealing to investors looking for gold-backed stability.

Both coins cater to different audiences, and users should choose based on their individual needs, whether for everyday transactions or for protecting wealth through the security of gold.

FAQs

Which stablecoin is more stable, Tether or Alloy by Tether?

While both coins offer stability, USDT’s stability comes from fiat reserves, whereas aUSD₮’s value is backed by physical gold, providing additional security for those who trust in gold’s enduring value.

Are there any regulatory concerns surrounding Alloy by Tether?

Like many asset-backed tokens, regulatory concerns could arise, particularly regarding the cross-border nature of digital gold. However, aUSD₮’s transparency and reliance on audited gold reserves offer some protection against potential regulatory scrutiny.

Can I use aUSD₮ for the same purposes as USDT?

Although aUSD₮ can be used for transactions, its primary focus is to offer a gold-backed investment solution. For day-to-day transactions, USDT may be the more appropriate option due to its wide acceptance.

How do transaction fees for Tether and Alloy by Tether compare?

Transaction fees vary across networks, but both USDT and aUSD₮ aim to provide competitive rates. Users should consider the network they are transacting on (e.g., Ethereum fees for aUSD₮) when comparing costs.

Was this Article helpful? Yes No