[raziel2701]

Someone in this whole scheme is leveraged to the tits on tether, and newly minted tether is needed as an asset to back the old tether. And as long as nobody actually tests the convertibility of the currency too strongly, this can hold up.

[alethiophile]

But if arbitrage bots were pushing the BTCUSD price up to match BTCUSDT, they'd have giant piles of USDT. And they'd have to convert it back in large quantities, or else they'd go broke.

The world where no one tests the peg too hard is incompatible with the world where Tether caused huge BTC runups all on its own.