How Does a Decentralized Exchange (DEX) Manage Market-Making during a Stablecoin Crisis?

DEXs primarily rely on Automated Market Makers (AMMs) and liquidity providers (LPs). During a stablecoin crisis, the LPs may withdraw their capital from the affected pools to avoid impermanent loss and direct loss from the depeg.

The AMM's automated pricing mechanism, based on the ratio of assets in the pool, will reflect the depeg, but trading volume may dry up due to a lack of liquidity and high slippage. The DEX itself cannot "halt trading" but can be disabled by governance or suffer from a lack of available liquidity for trades.