What happens if a stablecoin "defaults"?

I’m curious what’s going to happen if a stablecoin goes to 0, or it’s faced with a strong permannent correction -30% to -99% ), the funds are off-chain generating interest, as such, are mAssets owners safe from a specific stablecoin crash ? As the funds can be re-introduced on-chain trough a different stablecoin, and mAsset owners can get a different asset.

For the sake of no clear examples, lets say there’s 2 stablecoins :slight_smile:, with 2 mAsset pairs

USDa - mUSDa
USDb - mUSDb

Scenario :

There’s a problem with USDa and the currency pair with USD takes a strong downturn, there’s 200,000 mUSDa earning interest off-chain, that used to be USDa, but where converted to USD when taken off-chain, when these assets would be deposited back on-chain, should there be a way for the underlying mAsset to change, in order to protect the depositers ? mUSDa can be converted to mUSDb at a slight premium of convenience, in order to prevent them from getting an underlying stablecoin that is 0.7$ instead of 1$, and prevent them from receiving 70 cents on the dollar.

At the moment everything gathers interest from the initial contracts owned by the DMM Foundation, and in the future asset introducers, so far only a part of the USDC has been taken out of the contract to be deployed.

If the DMM ecosystem protects the deposits from single coin defaults, I can assume it’s a strong value proposition compared to other protocols, such as Curve, yet similar to how Aave, Compound and other single-coin deposits work.

The interest for an mToken is relative to its underlying asset, not the market value of its underlying asset. A volatile asset example: when someone mints mETH, they aren’t locked-in to the current value of ETH when they mint the mToken. If ETH went from $200 to $400 it wouldn’t matter because mETH : ETH value only changes by 1.0625x per year. In the case of a stablecoin defaulting, any cryptocurrency holder has basically the same risk if they were to hold funds in the form of DAI, USDC, or USDT. An insurance option might be possible, but I don’t know if insurance would cover a scenario where the underlying asset itself changes in value (i.e. goes to 0, or defaults); insurance would likely only come in the form of protecting users against loss of funds due to the underlying assets in the contract being somehow inaccessible or stolen. So if for example DAI defaulted, you unfortunately would be in the same boat if you held mDAI or DAI, just as you would be at a loss if you held mETH when ETH plunged 90% in value.
It is an interesting idea to insure against stablecoin failure, but I can only imagine how devastated confidence in the crypto markets would be if any of the major stablecoins failed. Hopefully others can share their insight on this topic