In case someone is interested in shorting Tether, thanks to DeFi this can now be done without explicit exposure to a crypto exchange or dangerous BTC shorts. For the uninitiated, I think this is also a good example for the kind of craziness that is possible now:

Deposit a "good" stable coin (for what counts as good in this space, which is USDC) on Aave or Compound and borrow Tether against it (75% and 80% loan-to-value respectively). You can now either send it to an exchange (e.g. Kraken) and swap USDT to real USD, or go to curve.fi and swap USDT for more USDC and deposit back to Aave or Compound. Repeat until either 4x/5x leverage (theoretical max) or your personal risk tolerance is reached. Remember to service the position by depositing more USDC occasionally (otherwise will be liquidated with penalty). As of this writing, variable interest rate is ~3.5%, fixed interest rate is 11%.

Scenarios:

- USDT goes to zero, buy as many as needed for scrap, pay back the loan, free the original stablecoins, sell for real USD and make between 1.75x to 4x/5x, depending on which route you chose above.

- Both USDT and USDC go to zero, you lose between 25 to 100%, depending on the route you chose above.

- There's a USDT shortage (real or somehow engineered) and it goes way above $1 causing your position to be force-liquidated, causing you lose between 25 to 100%, depending on the route you chose above.

- Only USDC falls below peg (temporarily or permanently) and you get force-liquidated (25 to 100% loss)

- You forget to service the debt or a spike in the variable interest rate causes you to get force-liquidated (5% penalty)

- Tether never goes to zero and you keep paying 3.5% interest (variable)

- Smart contract hack / Ethereum shuts down, you lose up to 100%

- Unkown scenarios

While there's no explicit exposure to a crypto exchange, there's still the implicit exposure to Coinbase/Circle via USDC. DAI offers no escape here, since its 50% collateralised by USDC (the other 50% crypto would likely be in serious turmoil in case USDT collapses potentially losing its peg as well).

In spite of this, I think this is a considerably better way to profit from a Tether collapse then the much more dangerous route of shorting BTC futures, or shorting via an unregulated crypto exchange where there's no guarantee that they'll pay or even be operational in such an event.