If the price is under $1, the backer can purchase the coins with reserves and pocket the difference. The price will only depart from the peg if selling forces the market price down and the backer doesn't have enough reserves to purchase tokens sold beneath the peg. This scenario is similar to a bank run and would require high selling volume to set if off.

The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.

The rumor is the backer is using the reserves to trade crypto. You won't ever see an attack on Teather during a crypto bull run as the reserves will be strong.

In the depths of a crash, the potential is definitely there. Last time Bitfinex bailed out Teather when its reserves came up short. So to really see Teather fail, we probably need a crypto crash and a weakened Bitfinex.

This is why people still use Teather. Even though it is risky, the current market dynamics make a failure unlikely.

IMHO failure due to embezzlement (Teather reserves stolen by an inside man) is a real possibility. The management team has already proven to be very shady...

Or doj freezing assets...

The platforms that deal in USDT have a very strongly vested interest in seeing its continuation. To the long term detriment of nearly everyone else.

Once the peg is broken it will collapse quickly. That means it's in their interest to keep the peg. If they have enough reserves (hard to imagine they have even 5% in cash but maybe they managed to buy enough BTC with their tokens to keep afloat for a while) they can keep the facade going for a very long time (until some kind of bank run is triggered).

Many people are also assuming that unlicensed unregulated offshore exchanges keep 100% of client funds in reserve. LOL.

The last few years of BTC, ETH, and DeFi all collapse quickly if the USDT peg fails.

How much crypto is borrowed on platforms like Compound against USDT? That collateral takes a 5% haircut, we’ll see painful liquidations. 10% or 20%? Fire sale everywhere.

> How much crypto is borrowed on platforms like Compound against USDT?

Close to zero. Compound, Aave, Maker - none of them allow folks to use USDT as collateral to borrow against. You can lend it for yield, and borrow it from others, but you can't use it as collateral.

There are some riskier protocol that allow it (rari, cream) but those are much smaller.

I'm assuming because a lot of people would lose a lot of money if it stops trading 1:1.

Manipulation by exchanges