Ethereum Community Proposes a Circuit Breaker to Protect Protocols from Major Outflows

Ethereum Community Proposes a Circuit Breaker to Protect Protocols from Major Outflows

The Ethereum community proposed a kill switch to increase the security of protocols in the event of a hack.

The Ethereum community rallied together and proposed a new standard for tokens. It is a kind of circuit breaker that prevents large amounts of tokens from being removed from the protocols. This helps to secure decentralized financial protocols (DeFi) and protect them against the risk of hacking.

The standard describes a smart contract interface for a kill switch. Once triggered, then, token withdrawals within the protocol are automatically halted as soon as the threshold is exceeded. A metric will be predefined for this purpose.

Note that the circuit breaker is mainly used as a gateway for token outputs. Moreover, it does not affect the underlying protocol’s structure, making it all the more efficient. According to Philogy, which collaborated on the proposal, the system allows developers to add a back-stop in smart contracts. They can thus stop the tokens before they definitively leave the contract in the event of a hack.

For Meir Bank, from Fluid Protocol, the ERC-7265 circuit breaker is a great find. Indeed, most protocols cannot always react in time and counter the attack in the event of a hack. When this happens, the hacker will not be able to drain an entire contract in seconds. This will allow the protocol to recover most of the assets.

Losses of nearly $200 million

Data analysis reveals that most DeFi protocols do not show daily TVL losses. In the case of hacks, they can reach 25 to 40%. The integration of the ERC 7265 thus promises many advantages for DeFi protocols.

If we refer to the DeFi Rekt report for the second quarter, we note that almost $200 million has been lost in three months. Total funds lost over the year to hacks reached $667 million in the first half of the year alone.

It seems this news did not affect the price of ETH, which struggled to reach the $2,000 level during the last crypto rally. It is currently trading at $1,936, a one-day loss of 1%. Analysts even expect the price of ETH to retreat further towards the $1,900 support zone. It certainly seems that Ethereum did not have enough pump for its own rally.

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