It is a terrible target to short as you can only do it through exchanges that deal in Tether. Exchanges that can manipulate your position and liquidate you if they feel like it. Exchanges that benefit from Tether existing.
Tether is pervasive in DeFi. You could borrow Tether through a smart contract, exchange for another stable or asset. Pay the interest until it collapses in the future and, buy back worthless Tether cheap to pay off loan and get collateral back.
The danger is that the smart contract you borrow from becomes insolvent and you lose your collateral. This becomes way more likely if Tether/crypto is crashing. Some of them are more prone to that than others, I'm sure, but all of them require collateral > the amount you borrow, so the risk is large.
Yes that is the basic structure of all crypto loans, I'm just describing a mechanism by which you could short Tether. I get what you mean that if Tether collapses, crypto assets like ETH, BTC would crash too. But you could short Tether against USDC w/ USDC as collateral too. I can definitely envision a scenario where USDC holds relatively stable even if USDT crashes.
Nearly all of the smart contract loans are over collateralized, so collateral > borrow isn't too hard to achieve...but yes, probably only likely in crash if collateral is another stable that holds peg.
Just to be clear, I think shorting Tether is a bad idea lol
