It’s not crystal clear anymore that USD is the only backing, this Bitfinex employee comment suggests it could be other cryptocurrencies (without expanding on mechanics) https://mobile.twitter.com/Bitfinexed/status/935333097377329...
Now we have a bit of proof that Tether has been lying or misleading via this Bitfinexed employee?
If it is backed by one or more cryptocurrencies that is better than nothing, but it means that there is significant risks that in a large market correction in cryptocurrency the backing of USDT can vanish from underneath it.
Back in the dotcom bubble nearly every company was causing the market to go up because they were all spending VC. It was sort of an fragile ecosystem because no one was making money, but everyone was spending it, and then the music stopped and a good portion were wiped out.
The music could stop and USDT could run into significant issues.
I am reminded of the movie The Big Short. I do think there is a bet here (like many others), but how to actually realize it and also how long will it take for this to be exposed?
"The Market Can Remain Irrational Longer Than You Can Remain Solvent"
This can at some point create a price difference between USDT and USD that people who do have access to redeem Tether will arb - the people buying USDT on these exchanges are driving up the demand for USDT. IMO seeing anything else in that comment is conspiracy (which might or might not be true, but you can't read that out of the comment).
If it's other crypto then surely the backing of tether is at-risk in any market crash just as much as any other crypto-currency. Surely that entirely defeats the whole point?