I think you’re missing a few things here. Kraken is the only exchange that has a USD-tether pair. It is not trivial to be an active trader on Kraken who can freely move in an out of tether and USD. Most of the holders of Tether don’t have access to a market to exchange for dollars.

So you’ve exchanged 10m tethers for Bitcoins to users who can’t sell them back for dollars, which will greatly diminish selling pressure.

If you are wash trading, you are not giving up valuable dollars for questionable tethers, that’s the whole point of wash trading! Kraken could can just provide heavy discounts to the wash trader to minimize slippage to trading fees (which I think they do).

Skeptics of the conspiracy, scam theory about tether basically use as their main argument a variation of yours: the bottom line being the market, as it is, believes Tether is not a scam, or the peg would simply not hold.

The reasons individuals believe one thing or another is inscrutable, but the key to this scam is opacity by the entity that creates the tokens. As long as Bitfinex can maintain the belief that they are backing each tether with a new dollar, there is no way to tell if the 50million new tethers were printed from “thin air” or purchased by millionaires.

Once the house of cards is built up, the holders of these related assets have a strong motivation to maintain the belief that tether is a real dollar backed asset. That really helps keep the peg at unity, until it doesn’t.

One of the most absurd things about this, is that tether says they are under no obligation to redeem tethers for dollars. That alone is as serious red flag.

Right now there seem to be enough suckers who are willing to play this game of “musical chairs” and do whatever they can to keep the music from stopping.