1. Celsius has closer to $500M in BTC in a cold wallet that for security reasons they do not want to touch and trade with on a daily basis.
2. They call up Tether who loans them $500M worth of USDT which they can use as a more liquid security to loan out or trade crypto with.
3. They pay interest to Tether on the loan in crypto.
4. Eventually they have to pay back the USDT loan with USDT, although if their BTC value hasn't declined they probably extend the loan period instead -- although sending the USDT back is probably how Tether gets burned.
5. If the loans are denominated in $USD and Tether accepts USDT at the market rate for paying back the loans that would be a mechanism that would naturally pin Tether to the $USD via arbitrage by people who want to buy a cheaper USDT token to pay back their loans with whenever Tether falls, and don't want to be actively paying back Tether with their USDT when the price has fallen.
> But they have to know that none of that funny money is going to get paid back with real money.
To first order, none of it is about $USD so literally nobody cares, and its all just funny money collateralized by other funny money.
It is very much like someone sitting on a vault full of Gold (the BTC cold wallet) that wants to borrow money (the USDT in the crypto space) in order to have liquidity (buy crypto shit with it).