I think it's the money exchanges like Binance "owe" them for the free Tether they receive. This is accounting shenanigans because the money is nowhere (i.e. when they mint Tether and send them to an exchange the commercial paper account gets credited mechanically). It's not physical reserves, but reserves in the accounting sense.
And the collateral is probably bitcoin in Binance's cold wallets. So ultimately it is backed by crypto. Which also gives the answer to how it is kept stable (at least in the short term) because the paper is denominated in dollars and they'd have to pay back real cash if the value of the Tether slid.
