Alloy by Tether (aUSDT): Tether’s Gold-Backed Synthetic Dollar
The field of stablecoins might seem straightforward, but there’s still a lot of innovation and growth in the industry. Alloy by Tether is an extremely promising new development. By allowing people to mint synthetic stablecoins, Alloy by Tether creates opportunities for profitable activities such as lending. Explore this guide to learn all the details about how Alloy by Tether works, and what makes it different from other stablecoins.
Key Takeaways:
Alloy by Tether is a type of tethered asset linked to the Tether Gold stablecoin.
Users deposit Tether Gold as collateral, and then mint aUSDT, which mimics the value of the United States dollar.
What Is Alloy by Tether?
Alloy by Tether is a type of tethered asset linked to the Tether Gold stablecoin. Users deposit Tether Gold as collateral, and then mint aUSDT, which mimics the value of the United States dollar. This creates a synthetic, gold-backed dollar that people can use to manage purchases, loans and investments.
What Is a Tethered Asset?
A tethered asset is a type of cryptocurrency whose price is tied to another asset. Unlike regular cryptos, a tethered asset’s price doesn't change based on how much buyers are willing to pay. Instead of following supply and demand, a tethered asset's price changes based on the value of one or more other assets.
What Does Alloy by Tether Aim to Achieve?
Alloy by Tether is part of the Tether organization's ongoing mission to provide usable crypto. Tether believes that the inherent value of crypto has made it far less usable. Many investors won't use their crypto for digital payments because they fear the idea of giving away assets that might skyrocket in price in the next week.
Alloy by Tether hopes to solve this issue by providing a synthetic stand-in for the Tether Gold cryptocurrency. The synthetic dollars that people mint can easily be used for DeFi applications, but they still maintain ownership over their initial Tether Gold tokens. Alloy by Tether believes that its new system can make cryptocurrency far more usable for online purchases and other digital payments.
How Does Alloy by Tether Work?
At its most basic level, Alloy by Tether is simply an ERC-20 token with its value set by its parent company. Though the blockchain side of things is simple, this crypto still uses some complicated mechanics. In order to set a fair price and provide users with effective services, Alloy by Tether uses the following operational principles.
Overcollateralization
Overcollateralization is the key to creating synthetic tethered assets that still retain value. When a person wants to mint Alloy by Tether digital assets for their own use, they first lock Tether Gold into a smart contract. The program requires this collateral to be worth more than the value of the Alloy by Tether tokens they wish to withdraw. By overcollateralizing all minting, the system guarantees value without putting itself at risk.
Alloy by Tether Vaults
Vaults are the core smart contracts of the Alloy by Tether system. They record and manage all user collateral. In addition to processing and holding onto collateral, Tether Vaults also store unissued aUSDT tokens, as well as records of KYC verification for each user.
Liquidation of Collateral
Since Tether Gold's price is tied to the price of physical gold, its value can rise and fall. To keep this from rendering aUSDT tokens worthless, Tether Gold uses a liquidation system. If the price of gold falls so much that a user's gold-backed digital assets are worth far less than the aUSDT tokens they have, Alloy by Tether will liquidate some of their assets in order to secure funds.
Benefits of Alloy by Tether
Since gold-backed stablecoins already exist, is it worth buying Alloy by Tether? Although the concept of this crypto might seem a bit redundant, it actually provides several distinct benefits for both traders and investors.
Solid Foundation in Swiss Gold
aUSDT tokens are backed by Tether Gold tokens, which are a digital representation of ownership in real gold. A single Tether Gold token is worth one fine troy ounce of a gold bar stored in a Swiss bank account. Ultimately, this means that aUSDT has gold backing not found in other stablecoins.
Transparency at Your Fingertips
The Alloy by Tether site is fully committed to transparency. Users can review the tokens backing their aUSDT at any time. Each Tether Gold token is tied directly to a bar of physical gold, so users can always be confident there’s a physical item solidifying the value of their tokens.
Unit of Account Backed by Stability of Gold
One of the main perks of aUSDT as compared to XAUt is that the price is more stable. aUSDT's price always remains roughly the same as the price of the U.S. dollar. The only thing affected by the fluctuating price of gold is the amount of aUSDT you can withdraw. This makes it much easier to calculate payments and manage expenses.
Around-the-Clock Accessibility
Unlike physical gold, you don't have to worry about things like public trading hours or time zones. aUSDT is available to buy or sell at any time. This coin is publicly tradable, 24/7/365.
Secure and Simple Storage
As an ERC-20 token, aUSDT is straightforward to store. It's compatible with almost all crypto wallets, and it's easily managed through the Alloy by Tether site. Depending upon your wallet style, Tether can even automatically add and remove your tokens as smart contracts change.
How to Mint aUSDT
If you're interested in getting aUSDT tokens straight from Alloy by Tether, you'll need to visit its website and mint tokens. The token minting process involves six easy steps, as follows.
Step 1: Connect your wallet to the Alloy by Tether site and go to the Mint section.
Step 2: Enter the number of Tether Gold tokens you wish to stake as collateral, or enter the amount of aUSDT you wish to withdraw.
Step 3: Make sure you have enough collateral to cover your desired amount of aUSDT.
Step 4: Check the projected metrics and make a note of your liquidation price and your mint-to-value ratio.
Step 5: Confirm the collateral transfer and sign your wallet with your private key, if necessary.
Step 6: Depending upon your wallet, you may need to directly add the aUSDT token addresses to see the tokens in your wallet.
How to Return aUSDT and Withdraw XAUt
When you're done using your aUSDT, you can return it in order to withdraw your XAUt tokens. Follow the steps below to collect your collateral from the Alloy by Tether Vaults.
Step 1: Visit the Alloy by Tether site again, and select the Return option.
Step 2: Check your mint-to-value ratio, and make sure it’s above the liquidation point of 75%.
Step 3: If necessary, add more aUSDT back to your account. You'll need to return all aUSDT in order to withdraw your full XAUt collateral.
Step 4: Confirm all wallet transfers and sign all necessary transfers in order to send the aUSDT back to Alloy by Tether.
Step 5: Click on the Remove Collateral option to recover your XAUt.
Is aUSDT a Good Investment?
As an investment token purchased on the secondary market, aUSDT has some interesting applications. First of all, Alloy by Tether users will often need to acquire aUSDT to close out their minting period after they’ve used up their aUSDT tokens on whatever else they were doing. This creates a consistent demand for the synthetic dollar that might work well for some investors. The token's price is pegged to the U.S. dollar, so prices won't fluctuate wildly. However, occasional spikes in demand may lead to some depegging events in which profits can occur.
There can also be some potential rewards to swapping aUSDT and XAUt tokens. Since the aUSDT token is linked to the price of gold, minting aUSDT when gold prices are low and returning it when gold prices are high can be a wise investment choice.
Just keep in mind that this type of coin is still fairly new. Though it has undeniable promise, it's hard to predict what will happen with it, and the collateralization and liquidation processes may be confusing to some investors. Anyone interested in aUSDT investments will need to be cautious about overextending themselves. Only spend money you can afford to lose when investing in the Alloy by Tether crypto.
Closing Thoughts
Alloy by Tether is an intriguing plan to capitalize on the growing interest in stablecoins. The ability to retain gold-backed tokens while using a synthetic dollar provides investors with a lot of opportunities. aUSDT is sure to be useful for everything from yield-bearing products to personal transactions. With plans to introduce other tethered assets besides aUSDT in the future, Alloy by Tether is a project worth watching.
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