> In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.

I’m sure there would be a lot of people who would like to trade their Tethers for Bitcoin in the event of a collapse, but who is going to sell it to them?

Someone who thinks that they can recover 10% of the nominal value may be willing to sell BTC for Tether, at a price 10x as high as the actual-USD Bitcoin price.

Yup, flight to safety in crypto means buying BTC. Nobody needs Tether—you can get into and out of nearly any fiat currency from BTC directly.

One problem: nobody with BTC will want to trade it for tether if tether collapses, I bet even the market makers would stop exchanging BTC a for tether.

Right. But problems with Tether don't affect bitcoin. People who want dollar-pegged digital currencies can hold other USDx tokens, including DAI, which is all provably based on over-collateralized (minimum 150%) debt obligations in a decentralized system.

Absurd. It is like saying the collapse of Lehman Brothers would be good for other bank stocks.

When Tether implodes the entire space will deleverage.

No, it's more like saying that a downgrade in America's AAA debt rating would lead to a rally in price of the US dollar and Treasury Bonds. (Which is exactly what happened in 2011.)

It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.

If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.

No, Tether can simply become worthless. Take the extreme case where Tether's backing organization does an exit scam and there are no assets at all behind it. Anyone who has Tether has simply lost that money; they don't get to sell it and buy something else.