What Happens to the Secondary Token’s Value during a “Death Spiral” Event?

During a "death spiral," the value of the secondary token collapses catastrophically. The event starts when the stablecoin loses its peg and falls below its target value.

To restore the peg, the protocol mints and sells more of the secondary token to buy back the stablecoin. This increased supply of the secondary token causes its price to fall.

As its price drops, the system needs to mint even more of it to buy back the same amount of stablecoin, leading to hyperinflation and a complete loss of confidence, ultimately crashing the value of the secondary token to near zero.