How Do Algorithmic Stablecoins Initiate a Death Spiral?

Algorithmic stablecoins rely on a mechanism, often minting and burning a volatile asset, to maintain a $1 peg. If the stablecoin significantly de-pegs due to selling pressure, the mechanism can fail.

The confidence crisis leads to mass redemption/selling, requiring the minting of the volatile asset, which crashes its price, further weakening the stablecoin and initiating the spiral.