There has always been a healthy amount of skepticism about Tether in the crypto community. Your cryptofans narrative does not accurately reflect reality.
Isn't the trouble that Tether substantially influences the solvency of all other stabletokens and the value of cryptocurrencies themselves (in relation to X fiat)?
For example (admittedly this is probably way off-base here), let's say there were only two stablecoins (USDT and USDC), and only one of which had true 1:1 buyback (USDC) where >=1 entity would exchange one USDC for 1 USD (I know the reality of USDC is muddle too). Let's also say the amount of USDT in circulation was $10b and the amount of USDC in circulation was $1b. If there's a well-established "distrust" of USDT, where people only "temporarily" keep it on hand or use it as an intermediary, they're still using it to acquire other cryptocurrency, and thus inflating prices, right? If everyone attempts to exit onto the USDC, the available supply will dry quickly, causing the <X Crypto>/USDC price to plummet (?).
Thus even if you thought Tether was intolerable I feel like it's an implossible belief to simultaneously think (1) that Tether is a scam, and (2) cryptocurrency can be seen a store of value. (I know there are others who recognize and highlight other utilities of cryptocurrencies).
(I am super interested in the flaws in this logic because as an aside, if there's any general reading material regarding these kind of economic thought experiments, doesn't have to even be crypto-related, I will certainly take any recommendations! I find them really fascinating. Someone mentioned a Darknet Diaries episode on counterfeit currency; Probably the first thing I have to look into.)
There are three very interesting threads in your comment, as I see them:
1. Tether influencing solvency of other stablecoins.
2. (Tightly related to point 1) Inflation of Tether as it becomes an intermediary.
3. That it is logically inconsistent to view Tether as a scam while also viewing cryptocurrency as a store of value.
Point 3: There is a difference between a store of value and a store of value that is stable with respect to some specific other value.
Consider Bitcoin and Ethereum. The rules by which these blockchains operate are quite transparent. The software is free (as in freedom). Anybody in the world with the means can run a node and participate in these blockchains. Thousands of people are doing so right now. These currencies are open in a sense that no other currency has been open in the entire history of the human race.
Tether on the other hand is completely opaque about its operations. In fact, the people at Tether actively spread misinformation about how Tether operates. It has repeatedly dodged and attempted to fabricates audits of its reserves.
Given all of this, I do not see any logical inconsistency between thinking of Bitcoin and Ethereum as stores of value which is largely orthogonal to the value of the fiat that you hold while simultaneously thinking of Tether as a scam stablecoin whose value is pegged to that of a fiat currency.
Point 1: I agree with you that the existence of Tether improves the solvency of other stablecoins. It reduces the pressure on anyone backing another stablecoin by offering an alternative means of a holder of that stablecoin to realize the dollar value of their stablecoin holdings (albeit with a slight overhead in transaction costs).
I think this is more significant of a factor for centralized stablecoins like USDC than it is for decentralized stablecoins like DAI, although I suspect the existence of USDT puts less pressure on collateralized DAI positions as well.
This is not a compelling reason to encourage or even tolerate the existence of Tether. A true stable coin would not experience any significant difficulties even if Tether became insolvent. I believe that decentralized stablecoins like DAI would only experience negligible effects from Tether's insolvency.
Point 2: This is a very good point and I don't understand it well enough theoretically to confidently make predictions about how it would play out on the market.
My intuition tells me that the most powerful factor against inflating prices of USDC in your scenario is that Coinbase (and the USDC consortium) will stick to their position and always offer $1 in exchange for 1 USDC.
The other factor is that there are many more legitimate stablecoins that could partly fill in the vacuum that Tether would create if it imploded. So not all attention would be focused on USDC. If people really needed a stablecoin, then they would not want to purchase an asset whose value was increasing.
There are a lot of parameters involved, though, and I find this very hard to reason about. Would love any input here.
From their website: "Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”)."
They don't claim 1:1 USD backing. They claim that every tether is backed by 1 USD of value. So, when their crypto holdings go up in value, TADA!, more reserves to print tether against. The problem here is they never explain what happens when the value of their backing assets goes down.
And yet the cryptofans were telling us we were curmudgeons for not buying into the hype (or in this case, the bullshit).