That's what I suspect and I'll be shorting more USDT today on AAVE.
Sorry, I don't see how this can work.
USDT is a fraud. Exchanges are active participants in the fraud by pegging USDT at $1.
The only way your short can pay off is if the exchanges stop the "pegging" game. When the pegging stops, the exchanges will likely fold up and disappear.
Couldn't a billionaire crush tether by shorting so much of it that it exceeded the cash reserves?
Short answer --- no. They can just print more tethers --- which exchanges and crypto-fools will readily accept as being worth $1 USD.
You're making a common mistake --- you're assuming that the crypto market is actually a "free market" similar to the regulated stock and currency markets. You're assuming it is free of the inside manipulation that keeps the price of USDT artificially pegged at $1 USD no matter what.
You can play games to short it in DeFi which might break the peg on DeFi systems, however if anyone wants to try and arbitrage the difference (e.g. buy USDT at 0.50 USD, take it to Tether and redeem it for 1 USD) then Tether may just say "here take some of our Commerical Paper instead" or even "No you have broken our ToS".
That's what I suspect and I'll be shorting more USDT today on AAVE.