Could a Vulnerability in a Major DeFi Lending Protocol’s Smart Contract Trigger a Market-Wide Death Spiral?

Yes, absolutely. A critical vulnerability in a major protocol like Aave or Compound could have catastrophic, market-wide consequences.

For example, an exploit that allows an attacker to steal a significant portion of the protocol's collateral would shatter confidence. This would lead to a "bank run" as users rush to withdraw their remaining funds.

Since this protocol's assets are used as collateral across the DeFi ecosystem, its collapse would trigger cross-protocol liquidations, causing a domino effect and potentially initiating a death spiral for numerous crypto assets.