Ok, sure.
> To make this economical, they would need an in with at least one exchange. Their trades on this venue (let's call it ShadyBit) would be free, or close to it. This is where the majority of their wash trades happen. If one naïvely averages volume across the market, this will do the trick.
Do what trick, exactly? What does your hypothetical manipulator get out of this?
> But the jig will fall apart if another exchange starts sharply diverging. So you set up sock puppet accounts there to soak up excess demand. As long as you keep the confidence game balanced, there shouldn't be too many people looking to sell at unusually low prices.
"Sock puppet accounts to soak up excess demand". See, right there, you're saying something, but I don't think you're following it through to its logical conclusion. Saying you just "soak up excess demand" hides the fact that this requires enormous amounts of capital, not to mention paying the transaction fees on the exchanges you aren't colluding with.
What you are supposing here is that someone is artificially propping up the price of Tether. What that means is that they are taking real US dollars and exchanging them for an asset that they know is not worth its current price, en masse. If you want to posit someone is doing that, you need to provide an extremely compelling motive for so doing. A motive that would generate more money than it costs them, and I don't see any way that could be happening, with the possible exception of Bitfinex themselves doing it. But...of course, if Bitfinex is propping up the price of Tether by exchanging them for USD 1:1 then....isn't that the point of Tether in the first place?
> In the meantime, you can continue using your inflated-value tokens as collateral for borrowing or to buy appreciating assets or to sell or whatnot.
You're really handwaving here. You're saying they're taking real money, USD, and buying Tether tokens so that they can prop up the price of Tether because they have a lot of Tether that they can exchange for other stuff?
Play this tape all the way through. Let's say you have 100M Tether and 1M USD. You want to prop up the price of Tether so that you can buy sweet cool stuff with your Tether tokens. So you use your 1M USD to prop up the price of Tether, and you starting buying shiny new Bitcoins with your Tether. Now you've bought 10M USDT worth of BTC, so now there is 10M more Tether out there in circulation. You've created massive selling pressure that you now need to balance with real USD. What you are proposing here just fundamentally violates equilibrium principles and so cannot, on its own, be what's happening.