So, please bare with me and imagine this scenario.
At 15th Jan, NYAG decided Tether is fraud and/or Tether is unbacked throwing the full power of the US government against it.
Tether obviously loses it’s peg and starts racing to $0, that wouldn’t be huge deal but it’s in every DEX AMM pool with other stables
So let’s make this simple example
in AMM DAI/USDT pool, USDT goes to 0 and DAI goes to $2
Suddenly people that have borrowed $300 worth of DAI against $1000 worth of ETH (at relatively safe margin level of 300%+)
Owe $600 instead of $300.
At the same time other with riskier margin levels get liquadated and ETH price dumps as well, causing even the safe guy above being under collaterized with $600 worth of DAI against $100 worth of ETH (if ETH drops 90%)
Wouldn’t that crash the whole system? And not just makerdao of course but pretty much everything?
I realize this is unconfirmed black swan FUD at this point, but black swans do happen from time to time and I just woud like to know if the above scenario is ralistic if that does happen, your thoughts?