How Does the Concept of ‘Run Risk’ on a Stablecoin Relate to Margin Requirements in Derivatives Trading?

'Run risk' is the danger that a large number of stablecoin holders simultaneously attempt to redeem their tokens for the underlying asset, typically fiat, due to a loss of confidence. If the stablecoin's reserves are illiquid or insufficient, the price can collapse (depeg).

In derivatives trading, a stablecoin run directly threatens the collateral's value. Exchanges must immediately raise margin requirements or liquidate positions to compensate for the depreciating collateral, preventing the exchange from becoming insolvent.

This sudden need for more collateral can trigger cascading liquidations.