Why not have a step between #1 and #2? "Tether immediately sells the BTC for $10"
There's still some risk if the price is rapidly moving and they can only get $9.99 for the BTC you sent them, but that could be mitigated by ordering the transactions to keep the peg: you send $10 of BTC, they sell it (and "only" get $9.99), they give you 9.99 USDT and say, "tough, what you thought was $10/BTC was really $9.99/BTC"
> Why not have a step between #1 and #2? "Tether immediately sells the BTC for $10"
Yes, why indeed? That's a great question for Tether! If they were holding enough actual cash reserves to cover all the USDT in circulation, there wouldn't be an issue.
There's still some risk if the price is rapidly moving and they can only get $9.99 for the BTC you sent them, but that could be mitigated by ordering the transactions to keep the peg: you send $10 of BTC, they sell it (and "only" get $9.99), they give you 9.99 USDT and say, "tough, what you thought was $10/BTC was really $9.99/BTC"