No, because someone would have to trade / buy the Tether, and no one would, so the price of Tether would drop like a stone - not the other way around.

Somebody would! (Or rather, some thing.) There are a lot of smartcontract liquidity pools in Ethereum that facilitate trade between two tokens. The set an exchange rate by a formula that only looks at how much of each token is currently in the pool, not at prevailing market price[1].

So if and when it's apparent that Tether will be worthless, there will be a mad dash to dump it in those LPs in exchange for the other tokens, which was what happened to TerraUSD [2].

Here's a list of the LPs that have Tether as one token, just on Uniswap:

https://info.uniswap.org/#/tokens/0xdac17f958d2ee523a2206206...

[1] This dynamic has the effect of writing a persistent ITM option with intrinsic value equal to LP's price divergence from the market exchange rate.

[2] Here's Curve's infamous 4pool, which has TerraUSD (UST) and three other non-defunct stablecoins -- it's 97% UST now: https://curve.fi/4pool

Both would happen simultaneously. Think of crypto like a balloon with only a narrow exit at one end going out into fiat: if you push down on Tether, BTC/ETH will inflate in Tether terms (because everybody who can moves into other cryptos) but deflate in USD terms (because there will be a run for the exits and a lack of buyers).

So both BTC/ETH and Tether would deflate in USD terms...

There are two sides to every trade. Who would be willing to give up their BTC and ETH for banned Tether?

If the crash is bad enough: Tether itself. Or Bitfinex, its parent.

If they buy up their own debt at $0.01 on the dollar then they got away with their fractional reserving scheme, and their executives walk free. Free and very wealthy.

There is always a clearing price. The question is simply "how low"?

My experience in crypto tells me that there is usually always someone willing to be on the other side of the trade. People exiting Tether would still be exiting through a smaller and smaller door of BTC and ETH going up and up. More and more desperate to pay any price to exit Tether.

> there is usually always someone willing to be on the other side of the trade

This is usually true in financial markets. When it's not, we call it a crisis.

But at what price? Will tethers be sold to debt collectors for pennies?

It went up _in USDT terms_

If Tether was sanctioned crypto would nuke in USD terms

Suppose you owned clean ETH and someone offered you a 10% premium over the going rate if you were willing to accept sanctioned Tether in exchange. Would you really accept that deal?