Abstract: The `Black Thursday' crisis in cryptocurrency markets demonstrated deleveraging risks in over-collateralized stablecoins. We develop a stochastic model that helps explain such crises. In our model, the stablecoin supply is decided by speculators who optimize the profitability of a leveraged position while incorporating the forward-looking cost of collateral liquidations, which involves the endogenous price of the stablecoin. We formally characterize regimes that are interpreted as stable and unstable for the stablecoin. We prove bounds on quadratic variation and the probability of large deviations in the stable domain and we demonstrate distinctly greater price variance in the unstable domain. We identify a deflationary deleveraging spiral by means of a submartingale.   These deleveraging spirals, which resemble short squeezes, lead to faster collateral drawdown (and potential shortfalls) and are accompanied by higher price variance, as experienced on Black Thursday. We also demonstrate `perfect' stability results in idealized settings and discuss mechanisms which could bring realistic settings closer to such idealized stable settings.