Define the ‘Death Spiral’ in Stablecoin Economics.
The death spiral is a catastrophic feedback loop specific to certain algorithmic stablecoins. It begins when the stablecoin loses its peg, causing its associated volatile governance token to drop sharply in value.
As the system tries to restore the peg by selling more of the governance token, its price drops further, making the mechanism ineffective. This loss of confidence and collateral value leads to a rapid, irreversible collapse of the stablecoin's market value.
