> If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.
This trade involves risk, and not just the direct USDT risk. If it didn't, there's no particular reason multi-billion dollar hedge funds wouldn't buy this down to the yield of an equivalent US treasury or similar.
> If it didn't, there's no particular reason multi-billion dollar
This is true in theory but in practice it seems much more commonly false. Even in vastly more mature and liquid markets, straightforward arbitrages can persist for years and in some cases decades, even after an inefficiency becomes public knowledge
This trade involves risk, and not just the direct USDT risk. If it didn't, there's no particular reason multi-billion dollar hedge funds wouldn't buy this down to the yield of an equivalent US treasury or similar.