diff --git a/lib/storage/index.ts b/lib/storage/index.ts
index c143c8e85..6dcd8e0bd 100644
--- a/lib/storage/index.ts
+++ b/lib/storage/index.ts
@@ -29,30 +29,16 @@ function degradePerformance(error: Error) {
  * Runs a piece of code and degrades performance if certain errors are thrown
  */
 function tryOrDegradePerformance<T>(fn: () => Promise<T> | T, waitForInitialization = true): Promise<T> {
-    return new Promise<T>((resolve, reject) => {
-        const promise = waitForInitialization ? initPromise : Promise.resolve();
-
-        promise.then(() => {
-            try {
-                resolve(fn());
-            } catch (error) {
-                // Test for known critical errors that the storage provider throws, e.g. when storage is full
-                if (error instanceof Error) {
-                    // IndexedDB error when storage is full (https://github.com/Expensify/App/issues/29403)
-                    if (error.message.includes('Internal error opening backing store for indexedDB.open')) {
-                        degradePerformance(error);
-                    }
-
-                    // catch the error if DB connection can not be established/DB can not be created
-                    if (error.message.includes('IDBKeyVal store could not be created')) {
-                        degradePerformance(error);
-                    }
-                }
-
-                reject(error);
+    const initialization = waitForInitialization ? initPromise : Promise.resolve();
+    return initialization
+        .then(() => fn())
+        .catch((error: unknown) => {
+            // catch the error if DB connection can not be established/DB can not be created
+            if (error instanceof Error && error.message.includes('IDBKeyVal store could not be created')) {
+                degradePerformance(error);
             }
+            return Promise.reject(error);
         });
-    });
 }
 
 const storage: Storage = {
diff --git a/tests/unit/storage/tryOrDegradePerformanceTest.ts b/tests/unit/storage/tryOrDegradePerformanceTest.ts
new file mode 100644
index 000000000..b160b5903
--- /dev/null
+++ b/tests/unit/storage/tryOrDegradePerformanceTest.ts
@@ -0,0 +1,128 @@
+import type * as LoggerModule from '../../../lib/Logger';
+import type storageModule from '../../../lib/storage';
+
+// `jestSetup.js` globally mocks `lib/storage`; this suite tests the real implementation.
+jest.unmock('../../../lib/storage');
+
+type Storage = typeof storageModule;
+type Logger = typeof LoggerModule;
+type LoggerCallback = Parameters<Logger['registerLogger']>[0];
+type LogData = Parameters<LoggerCallback>[0];
+
+type IsolatedModules = {
+    storage: Storage;
+    Logger: Logger;
+};
+
+type CapturedLog = {level: string; message: string};
+
+/**
+ * Load a fresh copy of `lib/storage` (and its `Logger` dependency) in an isolated
+ * module registry so the module-private `provider` state in `lib/storage/index.ts`
+ * does not leak between tests.
+ */
+function loadIsolatedStorage(): IsolatedModules {
+    let storage!: Storage;
+    let Logger!: Logger;
+
+    jest.isolateModules(() => {
+        Logger = require('../../../lib/Logger');
+        storage = require('../../../lib/storage').default;
+    });
+
+    return {storage, Logger};
+}
+
+function noop() {
+    // intentionally empty
+}
+
+describe('storage/tryOrDegradePerformance', () => {
+    // Fake timers cause the init promise chain to hang.
+    beforeAll(() => jest.useRealTimers());
+
+    let consoleErrorSpy: jest.SpyInstance;
+
+    beforeEach(() => {
+        // `degradePerformance` calls `console.error` — silence it to keep test output clean.
+        consoleErrorSpy = jest.spyOn(console, 'error').mockImplementation(noop);
+    });
+
+    afterEach(() => {
+        consoleErrorSpy.mockRestore();
+    });
+
+    it('falls back to MemoryOnlyProvider when a storage op rejects asynchronously with "IDBKeyVal store could not be created"', async () => {
+        const {storage, Logger} = loadIsolatedStorage();
+        const capturedLogs: CapturedLog[] = [];
+        Logger.registerLogger((data: LogData) => capturedLogs.push({level: data.level, message: data.message}));
+
+        storage.init();
+
+        const originalProvider = storage.getStorageProvider();
+        const targetError = new Error('IDBKeyVal store could not be created');
+        originalProvider.getAllKeys = jest.fn().mockReturnValue(Promise.reject(targetError));
+
+        await expect(storage.getAllKeys()).rejects.toBe(targetError);
+
+        expect(capturedLogs.some((log) => log.level === 'hmmm' && log.message.includes('Falling back to only using cache'))).toBe(true);
+        expect(storage.getStorageProvider().name).toBe('MemoryOnlyProvider');
+    });
+
+    it('propagates async rejections with unrelated messages without falling back', async () => {
+        const {storage, Logger} = loadIsolatedStorage();
+        const capturedLogs: CapturedLog[] = [];
+        Logger.registerLogger((data: LogData) => capturedLogs.push({level: data.level, message: data.message}));
+
+        storage.init();
+
+        const originalProvider = storage.getStorageProvider();
+        const originalProviderName = originalProvider.name;
+        const unrelatedError = new Error('Some unrelated storage failure');
+        originalProvider.getAllKeys = jest.fn().mockReturnValue(Promise.reject(unrelatedError));
+
+        await expect(storage.getAllKeys()).rejects.toBe(unrelatedError);
+
+        expect(capturedLogs.some((log) => log.level === 'hmmm' && log.message.includes('Falling back to only using cache'))).toBe(false);
+        expect(storage.getStorageProvider().name).toBe(originalProviderName);
+    });
+
+    it('falls back to MemoryOnlyProvider when a storage op throws synchronously with "IDBKeyVal store could not be created"', async () => {
+        const {storage, Logger} = loadIsolatedStorage();
+        const capturedLogs: CapturedLog[] = [];
+        Logger.registerLogger((data: LogData) => capturedLogs.push({level: data.level, message: data.message}));
+
+        storage.init();
+
+        const originalProvider = storage.getStorageProvider();
+        const targetError = new Error('IDBKeyVal store could not be created');
+        originalProvider.getAllKeys = jest.fn().mockImplementation(() => {
+            throw targetError;
+        });
+
+        await expect(storage.getAllKeys()).rejects.toBe(targetError);
+
+        expect(capturedLogs.some((log) => log.level === 'hmmm' && log.message.includes('Falling back to only using cache'))).toBe(true);
+        expect(storage.getStorageProvider().name).toBe('MemoryOnlyProvider');
+    });
+
+    it('propagates sync throws with unrelated messages without falling back', async () => {
+        const {storage, Logger} = loadIsolatedStorage();
+        const capturedLogs: CapturedLog[] = [];
+        Logger.registerLogger((data: LogData) => capturedLogs.push({level: data.level, message: data.message}));
+
+        storage.init();
+
+        const originalProvider = storage.getStorageProvider();
+        const originalProviderName = originalProvider.name;
+        const unrelatedError = new Error('Some unrelated storage failure');
+        originalProvider.getAllKeys = jest.fn().mockImplementation(() => {
+            throw unrelatedError;
+        });
+
+        await expect(storage.getAllKeys()).rejects.toBe(unrelatedError);
+
+        expect(capturedLogs.some((log) => log.level === 'hmmm' && log.message.includes('Falling back to only using cache'))).toBe(false);
+        expect(storage.getStorageProvider().name).toBe(originalProviderName);
+    });
+});