What Specific Market Conditions Can Trigger a Death Spiral in an Algorithmic Stablecoin?

A death spiral is often triggered by a sudden, sharp drop in demand for the stablecoin, leading to a sustained break from its peg. This can be caused by several factors: a major security breach or exploit in the protocol, a broader crypto market crash causing a flight to safety, or a targeted economic attack designed to depeg the stablecoin.

Once the peg is broken, fear and panic can set in, leading to a bank run where users rush to sell the stablecoin, overwhelming the stabilization mechanism and causing the secondary token to collapse.