Right now I think a good analogy is it's like musical chairs. The game is fine as long as the music is playing. When the music stops, someone's gonna lose big.
The problem is when the music stops and there's a run on crypto. People are trying to get out of $USDT and convert it into cash. Exchanges have to have buyers of $USDT so they can exchange $USDT back into cash for anyone that wants to. But they can't just create dollars out of thin air. If there's no buyers for $USDT anymore than the "currency" flatlines, it's no longer tied to the dollar.
If Tether were truly backed 1:1, Tether itself could just buy $USDT with its own cash on any exchange, and that would be enough to keep their currency afloat and stop the run.
The problem is when the music stops and there's a run on crypto. People are trying to get out of $USDT and convert it into cash. Exchanges have to have buyers of $USDT so they can exchange $USDT back into cash for anyone that wants to. But they can't just create dollars out of thin air. If there's no buyers for $USDT anymore than the "currency" flatlines, it's no longer tied to the dollar.
If Tether were truly backed 1:1, Tether itself could just buy $USDT with its own cash on any exchange, and that would be enough to keep their currency afloat and stop the run.