I think the issue you refer to is still enforcing repayment/liquidation without a trusted oracle, right?

BTC can be locked and USDT issued, but we would need an oracle (or something) to confirm repayment and release BTC trustlessly.

I need to explore this more myself, but maybe federated DLC oracles could help? I do not like overcomplicated solutions - they usually do not get used - but worth looking into, I guess.