Because bonds sell below their redemption value, an open-ended bond queue grows without bound, depressing bond prices and creating a positive feedback loop that ends in a death spiral and failure of the peg.
Source quote, verbatim
More generally, since the bonds would sell at a price lower than they were redeemed, the bond queue would grow without bound, leading to lower prices for the bonds and a positive feedback loop which would lead to a death spiral and the failure of the peg
From
Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Stable Cryptocurrencies - First Order Principles (2019), 3.1.2.1 Bonds, p. 18 https://ssrn.com/abstract=3402701 · source PDF
Cite as
Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Stable Cryptocurrencies - First Order Principles (2019). SSRN: https://ssrn.com/abstract=3402701
Holds when
bond redemption contingent on future price recovery
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