DeFi Bank Runs

DeFi bank runs are scenarios where a large number of users attempt to withdraw their assets from a protocol simultaneously, often due to a loss of confidence. Unlike traditional banks, DeFi protocols may not have a lender of last resort to provide liquidity during a crisis.

If the protocol's liquidity pools are drained, it may become unable to fulfill withdrawal requests, leading to a freeze or collapse. These runs are often triggered by rumors of insolvency, security vulnerabilities, or broader market panic.

Because smart contracts execute withdrawals automatically, a bank run can happen at digital speed, making it nearly impossible to stop once it begins. Understanding the mechanics of these runs is essential for designing more resilient liquidity structures.