Keeping the Tether delusion going is an existential matter for everyone with a stake in crypto.
First, all money is delusion, that's a documented fact (or to put it nicely, currencies rely on user's faith/belief to function).
Second I do agree with you, but I believe it's only part of the story.
I think tether also does actually provide a tangibly useful service to the crypto world, specifically high-speed liquidity to exchanges which is why the scam is allowed to continue.
My bet is that the day a legitimate (as in: transparent, properly audited by both traditional accounting firms and blockchain techniques), incorporated in non-banana-republic jurisdiction, etc ...) competitor comes around, Tether will die in an instant dumpster fire.
Startup opportunity y'all.
You can't square that circle because the money laundering controls aren't solvable enough to be in a regular jurisdiction and have psudonymous permissionless blockchain transfers.