Summary

Depegging in bear market

Vulnerability Details

When in extreme market conditions like a bear market with falling prices the stablecoin will face a lot of pressure that will make it hard to maintain its peg

Impact

Medium: In rapidly falling prices of WETH, WBTC a death spiral may ensue as there will be increase in undercollaterized loans, reduction in number active liquidators, whales and others taking short positions further fuelling the spiral down on the collateral and stablecoin and it will depeg

Tools Used

Manual Analysis

Recommendations

It is recommended the protocol have some emergency mechanisms in the case of bear markets or add more stabilization features e.g reserves, limits, caps, adjustable incentives and bonuses etc