It would not be considered valueless.
It would be valued at the current market price it could be quickly cleared at.
That price is substantially less than face value, but probably more than $0. And of course depends on who wrote the note and the terms.
To clarify: there are two markets, one is redemption of USDT through the Tether company, the other is independent transaction of USDT vs. payment typically through exchanges.
During asset liquidation, Tether’s assets would not be sold for the users’ redemption, but for the company’s creditors and shareholders. As soon as the suspicion of liquidation is there, there would be a bank run while redemptions still work.
In the case of a bank run, the price of USDT would be dictated by the exchange market exclusively. As a massive number of people sell through redemption, it is clear to the holders that when the cash dries out, redemptions will close. So they will theoretically be ready to sell through the exchange at 3%, because that is the expected value of the return across all USDT holdings.
That said, at the time of a redemption, isn't Tether legally required to sell or transfer assets to service the redemption (as long as they are able, subject to the timelines and qualifiers promised in their agreements)?
Which is where I'm saying that if Tether holds $0.03 USD + 5 short term notes for every 1 USDT, they are obligated to turn over (or sell) those 5 notes (and $0.03) when a redemption is requested.
While Tether may not be a bank, their users aren't just users: they're holders of Tether credit, subject to the terms that govern it.
Contractually, they are not considered creditors. Furthermore, liability for any loss is explicitly put on the user. (Whether the contract is valid can be litigated though.)
> isn't Tether legally required to sell or transfer assets to service the redemption
Sadly not… From the contract: “Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.”
In fact, US citizens are already disallowed from redeeming tokens, and have been for years.
Given that only 3% of each dollar is backed by fiat, they can only guarantee $0.03 on each dollar requested.
In the case of a bank run, the commercial paper etc. would be considered valueless, and unlike a real bank, their deposits are not insured.
So the value of a Tether would theoretically fall to $0.03.
In practice however, it is plausible that it would result in them blocking redemption and fleeing the country to avoid jail, so the value would be much closer to $0.