Why Is a High Redemption Fee Sometimes Implemented to Prevent a Death Spiral?

A high redemption fee is a defensive mechanism implemented by some stablecoin protocols to discourage mass redemptions (a bank run) during periods of stress. By making it prohibitively expensive to quickly exit the stablecoin, the fee reduces the immediate selling pressure on the asset.

This can buy the protocol time for its stabilization mechanisms to work or for the market to regain confidence, potentially preventing the death spiral feedback loop from taking hold.