What Happens to the Governance Token’s Value during a Sustained Stablecoin De-Peg?
During a sustained de-peg, the governance token's value typically crashes dramatically. This is because the protocol issues a large volume of the token to incentivize the burning of the de-pegged stablecoin.
The sudden increase in supply, combined with a loss of confidence in the entire system, creates intense selling pressure on the governance token, accelerating the death spiral.
Glossar
Intense Selling Pressure
Pressure ⎊ Intense selling pressure, particularly within cryptocurrency derivatives and options markets, represents a rapid and substantial decline in asset prices driven by a concentrated volume of sell orders.
Governance Token
Asset ⎊ A Governance Token grants its holders the right to propose and vote on changes to a decentralized protocol's operational parameters, often including modifications to risk models or fee structures.
Loss of Confidence
Collapse ⎊ A sudden, widespread loss of belief in the technical soundness or economic viability of a crypto asset or its underlying protocol.