Explain the Risk of “Bank Runs” in Decentralized Lending Protocols

A bank run in DeFi occurs when a large number of depositors simultaneously withdraw their funds due to fear of insolvency or protocol failure. If the protocol's borrowed assets are locked or illiquid, it may not be able to meet withdrawal demands.

This creates a panic, as the remaining users rush to withdraw, further stressing the protocol and potentially triggering a death spiral in its native token or collateral.