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You are not wrong, but you are making a false equivalence between Tether and banks.

Banks have fractional reserve because they take their customer funds and reinvest, make loans, etc. So they will never have one dollar in their vaults for every dollar they get deposited from their customers.

Tether is not doing any of that, they are just minting ~1.3 USDT for every USD they get deposited. What they are doing is criminal and should never be accepted as "just a known risk".

No, you can’t. And their TOS state they have zero obligation to do so.

Although the fractional reserve requirement has been dropped to 0% recently.

https://www.eidebailly.com/insights/articles/2020/4/federal-...

So there goes that regulation. At least there's FDIC?

Customers of regular banks doesn't suffer from this. In the US the treasury, or more accurately fdic, will protect the first 250k of each customer account.