A bank run occurs when a large number of customers withdraw their deposits simultaneously due to concerns about the bank’s solvency. In cryptocurrency, this idea manifests when many investors rush to sell their assets or withdraw funds from exchanges.

This panic can be triggered by various factors, such as negative news about a specific cryptocurrency, security breaches, or general market instability. When fear spreads, the selling pressure increases, often causing prices to plummet.

In decentralized finance (DeFi), a similar scenario can unfold. Users may withdraw liquidity from liquidity pools or unstake their tokens in response to alarms over the platform’s safety or viability. The consequences of a bank run can be severe, leading to significant losses for investors and potentially collapsing platforms unable to meet withdrawal demands. As trust is a crucial element in financial systems, managing fear and maintaining confidence is essential to prevent such events.