How Does the Concept of “Reflexivity” Apply to the Collapse of Algorithmic Stablecoins?

Reflexivity, a concept popularized by George Soros, describes a self-reinforcing feedback loop between market participants' beliefs and the underlying asset's price. In the context of algorithmic stablecoins, a death spiral is a perfect example of reflexivity.

As the stablecoin's price begins to fall, it negatively impacts belief in the system. This loss of belief causes more selling, which further drives down the price, reinforcing the negative belief in a vicious cycle.

The price action and market sentiment feed off each other, accelerating the collapse.