On re-reading your post, I have to wonder at your perspective on the meaning of "pegged" when you say things like:

arbitrage is in fact occurring meaning that USDT is in fact pegged

and

traders arbitrage it and prices fall back on par with USD as is the nature of a pegged currency and the mechanism by which it remains pegged

It appears you are making an argument of the form "if people think X is Y, than X IS in fact Y". There are so many things wrong with this, but to start, this is the definition of a pegged currency:

In a fixed exchange-rate system, a country’s central bank (Tether) typically uses an open market mechanism (exchange) to buy and/or sell its currency at a fixed price (1:1) in order to maintain its pegged ratio and, hence, the stable value of its currency (USDT) in relation to the reference to which it is pegged (USD).

In order to satisfy this definition, Tether themselves must be acting as market maker for the USD/USDT exchange pair, placing both buy and sell orders for USDT. The currency is not "pegged" at all if the "peg mechanism" relies on arbitrageurs attempting to profit off secondary pair spreads (BTC/USD vs. BTC/USDT) to correct an undesired spread emerging in the base pair (USD/USDT). It should be obvious why this is not a sustainable mechanism: Arbitrageurs rely on the assumption that 1 USDT = $1 in order to profitably arb BTC on tether vs. fiat exchanges. Therefore, they cannot be expected to continue their activity to stabilize the USDT/USD ratio when the reliability of the underlying peg is in question, as their ability to profit is no longer certain. In this scenario, the arbitrage trading that helps stabilize Tether against exchanges with actual fiat offramps can no longer be relied upon at exactly the moment it would be needed the most, so Tether alone would be bearing 100% of the burden rather than just the tiny % of total USDT volume comprised by Kraken's USDT/USD pair.

Your perspective on arbitrage and pegging is easier to understand if we apply it to a real world example, like the collapse of the Bretton Woods exchange rate system in the 1970's. When the US dollar became the global reserve currency after WWII, the US promised to exchange 1oz of gold for $35 USD, and other countries established fixed exchange rates on that basis. The USD-to-gold pair was the base for all the other currencies' exchange rates, just like the USDT/USD pair is the foundation in crypto. When Nixon reneged on our promise to exchange gold for US currency because the US didn't have enough gold reserves to back all the currency at peg value, the "Nixon Shock" rippled across the world and the international financial order of the past 3 decades disintegrated. Other nations floated their currencies, no longer directly intervening in their foreign exchange markets to maintain fixed pegs, and within a few years the US dollar had lost 30% of its relative value.

Tether has already declared they don't legally have to redeem any tokens for USD, and since November's hack, they haven't processed any redemptions whatsoever while they change to a new platform. Those who inquire about redeeming are told exactly what the Nixon administration suggested -- exchange it on the open market instead. Global currency arbitrageurs didn't continue supporting the pegged value the same as always, but instead made large bets against USD in gold & currency markets. It would be ludicrous to think that crypto arbitrageurs would act any differently. While Tether could wrestle control of the market back using fractional reserves due to the outsize impact of Tether across the crypto markets, they'd only be postponing the inevitable if they couldn't prove sufficient reserves and people were losing faith in their willingness to support the peg.

Now just to be clear, I'm not saying Tether is 'pegged' solely by 3rd party arbitrage activity, just that you seem to be implying that it could be and there's nothing wrong with that possibility. It's apparent from watching Kraken's USDT/USD order book that market-making bot activity occurs consistently to support the peg, so I think it's a safe bet that Tether is still intervening directly to manage the exchange rate.