Redemption Run

A redemption run is the digital equivalent of a bank run, occurring when a large number of stablecoin holders simultaneously attempt to redeem their tokens for the underlying collateral. This massive outflow of capital can deplete the protocol's reserves, leading to a liquidity crisis or a complete failure of the peg.

If the protocol cannot process these redemptions in a timely manner, panic intensifies, leading to further sell pressure. This is a psychological and structural threat that highlights the importance of reserve transparency and speed of execution.

Protocols must be designed to manage these spikes in demand to survive. A redemption run is the ultimate test of a stablecoin's resilience and reserve backing.