Not necessarily because Tether the company will use the USD or similar that they have to buy tethers on the market if the price falls below $0.995 or so. The worry is if there are say 30bn tethers out there and they only have $20bn cash and enough people redeem the the price will stay about $1 until the $20bn runs out and then suddenly drop to not much.
It's actually possible that rather than just holding US$ against USDT they have put some into bitcoin instead which would mean they may have plenty of funds unless bitcoin crashes in an unfortunate way.
So the consensus here seems to be that Tether the company is doing some sort of fractional reserve banking? I'm assuming no one on hacker news is holding Tether ...
To the point of actions speaking louder than words, why are there people who trust Tether enough to hold it? If there is no trust there wouldn't everyone redeem and create a bank run?
I've held tethers before now. The 'fractional reserve' thing is unknown. If I were a crook and running the thing I probably would have printed lots of tethers to buy bitcoin in the slump then sell them at a profit to fix the reserves and buy and island. But who knows unless they do an audit which they seem very reluctant to do. The above scenario would be illegal but would not lead to the collapse of tether unless the law got them which is tricky as they are based in various offshore locations.
I've been through this whole tether is a scam which will collapse thing before around late 2017 or Jan 18 and inspite of the crypto downturn they didn't.
It's actually possible that rather than just holding US$ against USDT they have put some into bitcoin instead which would mean they may have plenty of funds unless bitcoin crashes in an unfortunate way.