No, it's more like saying that a downgrade in America's AAA debt rating would lead to a rally in price of the US dollar and Treasury Bonds. (Which is exactly what happened in 2011.)
It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.
If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.
No, Tether can simply become worthless. Take the extreme case where Tether's backing organization does an exit scam and there are no assets at all behind it. Anyone who has Tether has simply lost that money; they don't get to sell it and buy something else.
It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.
If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.