This argument is very flawed, I'll pick on just one point. The main users of Tether are generally people who find it difficult to use conventional finance, so in the event confidence in USDT collapses, a lot of holders will be unable to exit.

I don't know why you gave possibility 1, given Tether have admitted it is not completely backed. Since the operation has refused over many years to provide proper accounts, breaking their own promise that they would, you would be foolish to bet on a rosy picture of their finances.