# kaal:claim:3402701-015

**Claim.** 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.

**Type.** failure  **Support.** argued

**Holds when.**

- bond redemption contingent on future price recovery
- no expiration on bonds

**Source quote.**

> 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, page 18

**Cite as.** Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Stable Cryptocurrencies - First Order Principles (2019). SSRN: https://ssrn.com/abstract=3402701

**Verify.** sha256 of source PDF `72ed2581b4cac2bd18a5b2640be959487a3cbc34c86ab5e5664924bcdb53c8e0` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Calcaterra%20et%20al.%20-%202019%20-%20Stable%20Cryptocurrencies%20-%20First%20Order%20Principles.pdf

**Failure mode.** bond-queue-death-spiral  (family: valuation-and-pricing-failure)

**Topics.** institutional-design

**Keywords.** bonds, death-spiral, feedback-effects, peg-failure

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