Only have a cursory understanding of capital gains but shouldn't the exchange out of Tether back into $Crypto have zero gains if it's working as intended since there's no change in value of your holding?

Capital gains tax on securities (like tether) is assessed on the difference between what you paid for the security and what you sold the security for. You can denominate it in whatever you like (tether, bitcoin, gold, sheep, whatever), but it's assessed in USD at time of sale.

Essentially, you're being taxed on the income you got from holding that security, not for trading, it's just assessed when you trade.

Yeah I'm aware of that much but toast0 said both transactions (which I took to mean for example BTC -> Tether and Tether -> BTC) would both be taxed which doesn't make sense where Tether is working as intended and holds value at $1. Of course the sale of BTC for Tether would be taxed because the market for that is moving but Tether in theory should not have an additional tax exposure just like selling BTC for USD then buying ETH doesn't require you to pay taxes on your ETH purchase with USD.

Sorry, you're right, if tether is working as marketted, it is a taxable transaction, but taxes are due on $0 of gain, so....

Maybe, but whoes to say these people are under the US Tax system?

These same rules generally apply in so major countries.