5% isn't possible, but you can make over 2% on treasury bills currently. The risk of the US government defaulting on loans can be essentially ignored.

Except in the crypto industry, where US bonds are likely to be seized, and therefore probably have an average payout rate below parity.

Do you have any information about US bonds being seized like this? I don't understand how it could happen.

Exactly. And even if the US government were to default on loans Theter would be the least of your concerns since the USD and consequently the global economy would be in a pretty bad shape.

This might be a dumb question but can you sell a treasury bond to a 3rd party before the terms are over without losing too much money?

You can sell them before maturity, but their value will depend on current interest rates, of course. If rates are up, you will have to discount the price.

This might not be exactly answering your question, but you can buy 4 week treasury bills. Even if you can't sell bonds, having money tied up for 4 weeks might not be a big problem.

Yes, they are completely liquid.

It's the gamble that banks make. A bank holds your money and will give it to you at any time. To fund this, they make an assumption about how many of their customers will actually want their money at any one time, and they invest the rest.

If all their customers decide to withdraw their money, this is a "run on the bank" and generally dooms the bank.

Presumably Tether planned to do the same: a percentage of the money they held would be invested, based on the assumption that not everyone who held Tether would want USD at any one point in time.

Of course, this stretches the meaning of "reserve", and utterly fails if they mismanaged the investment bit and lost the money they invested