All the people mindlessly saying "counterparty risk" clearly didn't read the article. He has thought about this carefully. His counterparty in this case is Aave, a DeFi smart contract. Smart contracts famously get hacked frequently, of course, but Aave has been around a long time, and it's probably reasonable to be somewhat confident in its security, at this point.

The second thing you have to worry about is Aave's liquidation mechanism: under the market conditions implied by a Tether collapse, will Aave's liquidation mechanisms function efficiently and effectively? The answer to that question would depend on exactly how the collapse unfolded (i.e. how quickly it was certain, the degree of insolvency, how much the market moved how fast, etc). However, it is important to note that the only thing at risk here for him is the profit from his short plus the collateral factor haircut, not the entire principal. The trade he did was to deposit $x usdc on Aave, borrow $y usdt, and then sell that usdt back to usdc. That means he physically has CF * principal USDC in his possession, and no matter what happens, Aave can't take that away from him. Now, he looped this twice, so it's actually CF^2 * USDC that he has, but that's still not that big a risk.

Finally, he has to worry about the solvency of USDC. However, USDC is regulated in the US and has fairly real audits. Almost nobody seriously thinks USDC is insolvent. I think there is very little to worry about here.

Personally, I think Tether is pretty obviously at least mostly solvent, and I think shorting it is a dumb trade that will lose him money. But he's going to lose money paying the interest, not losing his principal. People have been predicting a Tether collapse for literally years now, and despite all the market stress and volatility which should have clearly exposed their supposed fraud, they're still standing, and the peg trades with solid liquidity at $1 today.

My own theory of what's actually going on here is that Tether is intentionally obtuse, because it allows them to make seignorage profits against their own users. If you issue a stablecoin and you know you are solvent, then you can hint to the market that maybe you're not, and buy (your own) assets that you know are worth $1 at a discount, making a tidy profit in the process. I think this is their real strategy, always has been, and they've gotten very rich doing it. It's possible they've been under-collateralized at various times, and maybe are even slightly so now, but I seriously doubt they are currently insolvent to the degree people like this think.