Day traders generally can't redeem Tether, you need to be a "verified customer of Tether". Most Tether redemptions are done by large institutions.

So why aren’t those large institutions arbing the spread right now?

If the answer is that they don’t have faith they can get the redemptions to cover their positions that’s also breaking the peg.

Because the spread is too small, when it widened a few weeks ago the spread was heavily arbed.

Ok, so a $1 peg doesn’t exist or it’s been broken.

If Tether is pegged to a range against the dollar that’s fine and normal! Just claim that.

Or better yet don’t claim a peg at all if you have no mechanism to actually defend it.

The peg breaks when Tether refuses/is unable to redeem USDT for USD. Obviously in any secondary market whether order book or AMM based there is going to be trading within a range.

Day traders can redeem tether on tether.to, as long as they aren't US based.

With the Tether organisation themselves. They have enabled redemptions well in excess of 10 billion dollars since the start of the market crash.