Most of USDT's collateral comes from US Treasuries. Over the past six months, the issuer of the stablecoin Tether has reduced positions in commercial paper, Bloomberg has reported citing the company's CTO Paolo Ardoino.
According to him, the collateral holding in commercial paper is "still going down." Ardoino has explained this reserve structure allows the company to quickly meet its USDT redemption requirements. He has added:
"The worst-case scenario, Tether just shrinks."
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Barclays manager Joseph Abate has explained Tether could be forced to liquidate its assets if investors massively start withdrawing money from the stablecoin:
"Money market investors are nervous that if Tether is pushed to sell its CP (commercial paper) and CD (certificate of deposit) holdings, these normally illiquid markets could lock up, as they did in March 2020."