Dice Question Streamline Icon: https://streamlinehq.com

Prevent deleveraging spirals in collateralized stablecoin systems

Develop and evaluate stabilization mechanisms for collateralized stablecoin protocols (such as MakerDAO-style systems) that prevent deleveraging spirals triggered by collateral price declines and automatic liquidations, ensuring resilience against cascading liquidations and price instability in extreme market conditions.

Information Square Streamline Icon: https://streamlinehq.com

Background

The literature identifies deleveraging spirals as a key driver of collapse in collateralized systems: falling collateral prices trigger liquidations, which increase market supply and further depress prices, leading to cascading instability.

Despite recognizing this dynamic, the survey notes that no reviewed work provides concrete mechanisms to prevent deleveraging spirals, leaving a practical gap for protocol design and policy tools.

References

This insight raises an important research question: how can deleveraging spirals in stablecoins be prevented? None of the reviewed papers answer this question.

— Stablecoins: Fundamentals, Emerging Issues, and Open Challenges (2507.13883 - Mahrous et al., 18 Jul 2025) in Section 5.3, Research Gaps (Failure Analysis)