A redemption run is a rush of holders redeeming a backed token at the same time, straining custody, reserve liquidity, and operations the way a bank run strains a bank. A design that cannot service simultaneous redemptions will break its peg under exactly the conditions when peg stability matters most.
A protocol can be fully backed in aggregate and still fail a run if the backing is illiquid, because a run tests liquidity before it tests solvency.
How it works
Each individual redemption is legitimate, but their simultaneous arrival overwhelms a system sized for normal daily flow. How reserves are held sets the severity. On-chain assets that settle in seconds make a run painful but manageable with enough buffer.
Reserves in off-chain instruments with T+2 or longer settlement create an immediate liquidity gap even when the protocol is technically solvent. This is the same dynamic that hit money market funds holding illiquid assets in 2008: solvency and liquidity are different conditions.
Design consequence
Redemption capacity must be sized against a stressed scenario, not a normal day. The relevant question is not how many tokens redeem on an average day, but what share of supply could rationally redeem in 24 hours if confidence erodes, and whether the protocol can service that volume without breaking the peg. The answer drives reserve composition, settlement design, and whether a redemption queue or daily cap is necessary.
Example
A backed stablecoin with 95% of reserves in 30-day T-bills and 5% in on-chain stablecoins faces a liquidity gap if 20% of supply redeems in 48 hours. The T-bills are real but inaccessible on that timeline. The fix is a larger liquid buffer or a blended reserve with shorter settlement instruments.
See RWA Tokenomics Design for how this applies in practice.
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