They have said they are backed by commercial paper, but as many financial journalists have pointed out they would have to be one of the largest traders of commercial paper and none of the people who deal with commercial paper in the US have them as a counter-part. That would leave Chinese commercial paper which is the sketchiest thing in the world. You would only buy that to skim money in kickbacks, it would be a terrible reserve.

Also: We just saw a supposedly reputable exchange blow up. These are the people who have lied enough to actually prompt US regulators to act: a hard bar to clear.

It's not "next level stupid" -- they will make billions. You could say (particularly with hindsight) that they could have made a fortune with a legitimate stable coin. But I don't think the economics would have worked for a legitimate stable coin to scale up fast enough to keep up with the scam ones.