What Is a ‘Black Swan’ Event and How Can It Impact Crypto-Collateralized Systems?

A 'black swan' is an extremely rare, unpredictable event with severe consequences. In crypto, this could be a sudden, catastrophic market crash, a major protocol hack, or a critical bug in a core piece of infrastructure.

Such an event can cause the value of collateral to plummet so rapidly that the liquidation process fails. Liquidators may be unable or unwilling to sell the collateral, leading to bad debt within the system and potentially causing the stablecoin to lose its peg.

The system's automated defenses may not be designed to handle such extreme, unforeseen volatility.