What Are the Systemic Risks Associated with Unbacked Stablecoins?
Unbacked (algorithmic) stablecoins carry systemic risks, primarily the risk of a "death spiral" or hyperinflationary collapse. This occurs when the stablecoin loses its peg, causing the secondary stabilizing token to plummet in value, making the minting/burning mechanism ineffective.
The entire system can collapse, leading to a permanent loss of the peg and a complete loss of intrinsic value. Their stability relies purely on market confidence and the algorithm's resilience.
