Let's suppose I buy 100 USDT on an exchange.

What Tether claims happens:

0. Bob and I own $100. Tether and Bittrex own nothing.

1. Bob sends $100 to Tether Limited.

2. Tether limited sends Bob 100 USDT. They now have $100 in their bank account.

3. Bob transfers 100 USDT to bittrex.

4. I send $100 to bittrex. I buy 100 USDT using that $100 from Bob.

5. Bob withdraws his $100 from Bittrex. I withdraw my 100 USDT from Bittrex.

6. Now, I own 100 USDT, Bob owns $100, Bittrex owns nothing.

7. Tether Limited has to hold $100 in reserve. It's not their money - it's supposed to be backing USDT. In addition to having assets of $100, they also have $100 of liabilities.

The reality:

Steps 0-6 are the same.

Step 7: Tether Limited buys a vacation to the Bahamas with their $100, and ignores the $100 liability. They are actually insolvent, and I have no recourse against them, because the Tether TOS make it very clear that I cannot redeem my USDT for USD from them.

The whole point of tether is that it is supposed to be backed 1:1 with USD in Tether Limited's accounts. They have not proven to anyone that this is actually the case. For all we know, all that money went to the Bahamas, or a Swiss bank account, and they are just issuing USDT, pocketing what people pay them for it, and keeping none of it in reserve.