Basic question: why doesn't this affect the currency pair exchange rate? If lending rates reflect the (realistic!) idea that holding 1 USDT is less valuable than holding 1 USD, how does 1 USDT trade at par?
The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.
In the depths of a crash, the potential is definitely there. Last time Bitfinex bailed out Teather when its reserves came up short. So to really see Teather fail, we probably need a crypto crash and a weakened Bitfinex.
This is why people still use Teather. Even though it is risky, the current market dynamics make a failure unlikely.
IMHO failure due to embezzlement (Teather reserves stolen by an inside man) is a real possibility. The management team has already proven to be very shady...
How much crypto is borrowed on platforms like Compound against USDT? That collateral takes a 5% haircut, we’ll see painful liquidations. 10% or 20%? Fire sale everywhere.
Close to zero. Compound, Aave, Maker - none of them allow folks to use USDT as collateral to borrow against. You can lend it for yield, and borrow it from others, but you can't use it as collateral.
There are some riskier protocol that allow it (rari, cream) but those are much smaller.