How Does the Concept of “Bank Run” Apply to a Fully Collateralized Stablecoin?

A bank run applies to a fully collateralized stablecoin when holders lose confidence in the issuer's ability to redeem the stablecoin for the underlying collateral (e.g. US dollars).

Even if fully backed, rumors of insolvency or regulatory risk can trigger a mass exodus. Holders rush to redeem their stablecoins for the collateral, draining the issuer's reserves.

If the collateral is illiquid or redemption is paused, the stablecoin de-pegs and the panic accelerates, mimicking a traditional bank run.