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Death Spiral

A death spiral commonly refers to a series of negative feedback loops that result in the near or total failure of a cryptoasset or cryptoeconomic system. One such example is the Terra/UST collapse that occurred in May of 2022, involving the rapid withdrawal of liquidity and resultant de-pegging of the algorithmically backed stablecoin. These actions and events caused a negative feedback loop that led to the effective collapse of the project.