“[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a onetoone ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.”
Where does the 5% come from?
If all their customers decide to withdraw their money, this is a "run on the bank" and generally dooms the bank.
Presumably Tether planned to do the same: a percentage of the money they held would be invested, based on the assumption that not everyone who held Tether would want USD at any one point in time.
Of course, this stretches the meaning of "reserve", and utterly fails if they mismanaged the investment bit and lost the money they invested