Their "commercial paper" is most likely loans to exchanges and "whales" which is against crypto as collateral. It is a "shadow market" for loans against crypto

Their "commercial paper" is most likely loans to exchanges and "whales" which is against crypto as collateral. It is a "shadow market" for loans against crypto that they're calling "commercial paper" to sound all official and grown up. Which makes Tether effectively backed by crypto. As the price of crypto/bitcoin rises that collateral is worth more and those loanees can come back and borrow more Tether. Tether then gets used as fuel for arbitrage bots which pumps up the price of crypto (which is literally just monetary inflation, you have more and more Tether chasing after roughly the same amount of crypto so you wind up with inflation). This also explains how the peg is maintained since if the loan is dollar-denominated then nobody who has borrowed $250,000 in Tether wants to see Tether drop to $.90 USD and have to pay back 250,000 Tether plus $25,000 in actual USD (while on the other side everyone wants to buy Tether once it goes over $1.00 since you can flip it and arbitrage it). I'll let you do the math though on what happens if crypto were to say drop by 90% or so...