It’s mostly just counterparty risk but in a different way than what you described: if usdt implodes, then the exchanges goes down with it and you can’t withdraw your usd. You have to construct your position in such a way that your fiat money is outside of the crypto exchange.
Six months later and people still neglect the existence of decentralized exchanges![1]
On Compound, they have a frustratingly big collateral buffer, and have built up reserves over time from past liquidations, so it’s really hard not to get your collateral back.
(Caveat: To be sure, there could be a latent smartcontract vulnerability here.)
As in the thread, it is much harder to get a flash rally on decentralized exchanges, since you’d have to keep it up for enough blocks to trigger the Oracle.
If I were going to (further) short Tether, I would convert a bunch of USD to USDC and deposit it on Compound, then borrow ~65% of it back as Tether, which I would immediately convert to USDC then USD to invest more safely. You could also put some of than back into Compound to increase your USDC collateral buffer.
