[gregable]

I suspect it's backed by loans to bitfinex.

Basically tether mints a bunch of USDT, 'loans' it to bitfinex which then creates an asset on tether's balance sheet of the loan. Bitfinex then goes and buys BTC with the USDT raising the price of BTC.

The problem here is that there is no actual USD anywhere in this system. Net, the system is just one where tether is getting minted out of thin air and then sold to the public for BTC or whatever coins.