Agreed, I wouldn't be surprised if that were the case. In order to find yourself insolvent, you not only need to have losses in the principle greater than your gains, but you also need to have people trying to pull out enough money that you can't cover it.

IE, if 50% of the principal was spent on crypto gambling and Tether lost ~80% of it (so they lost 40% of the total principal), and the other 50% was put in safe assets and they got 20% of that (10% of the principal), they'd be down to 70% of the principal. But they're only going to be insolvent if people try to cash out 70% of the Tether in circulation at once. And like you said, just putting that into fairly safe investments is going to undo a lot of the damage. Heck, even just getting the returns an online savings account is giving now would have them make back the principal in about a decade.

Which isn't to say they won't fall apart. But I think a lot of people go to far assuming that their collapse is inevitable.

There are rumors that a significant fraction of Tether assets are in Chinese commercial paper. Fine for now, but a serious recession or political turmoil in China would impair the value of those assets.