Note that Kraken has a USD<->USDT trading pair, so it is convertible there (and only there AFAIK)

The consensus is that all/most trading there is wash trading to give the illusion of volume. But like all bank runs, they don’t occur until enough people actually ask for their money.

Until that point, people seem happy to consider USDT equivalent to USD (and that may never change)

That doesn't make any sense.

USDT is issued by Tether so if it is used by Binance, Binance would have had to buy it, assumingly from the fiat that went in.

That assumption is the key issue: Binance doesn’t have USD banking, there is no way for them to accept USD for which to buy USDT.

Exchanges use Tether because they don’t have banking and can’t accept USD. So the USD has to find its way to Tether by some other mechanism. They claim it’s institutions, which is absurd. No institutional investor would ever give billions to an unaudited offshore entity when they can send fiat directly to legit exchanges. Michael Saylor himself says no institutions are using Tether.

So where do the Tethers come from? Maybe it’s not a fraud. But the answer should be very simple, and yet they cannot explain it.