ETHEREUM

Introduction to Ethereum's new standard proposal "ERC 7265"! It introduces a circuit breaker mechanism to reduce the risk of DeFi hacks.

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Introduction to Ethereum

The Ethereum community members recently proposed a new standard called "ERC 7265," aiming to introduce a "circuit breaker mechanism" in DeFi protocol contracts to prevent significant asset losses in case of a hack attack.

ERC 7265 Introduces Circuit Breaker Mechanism for DeFi Protocols

Meir Bank, one of the proposal developers, explained the mechanism of this standard on Twitter. ERC 7265, known as the "Circuit Breaker" mechanism, aims to address the biggest security issue in DeFi protocols ── the lack of response time to mitigate the damage caused by hacker incidents.

Meir stated that in current DeFi protocols, there are many hacker activities, and once attacked, the results are quite devastating, with Total Value Locked (TVL) dropping to 0 in a short period. Although protocols can be upgraded or repaired through governance, Meir believes that most protocols simply lack sufficient response time to deal with attacks, often realizing it too late.

By integrating ERC 7265, protocol assets can have loss rate limits set, triggering a circuit breaker when under hacker attack, preventing assets from being lost rapidly. In other words, protocol developers can add a pause mechanism in smart contracts to prevent asset transfers when under attack.

Meir suggested that the parameter settings need to be collectively decided through governance. After conducting data analysis, it was found that unless under attack, it is unlikely for DeFi protocol TVL to decrease by more than 25-40% in a single day.

Note: This circuit breaker mechanism is similar to the concept in the U.S. stock market, where trading is halted when price fluctuations reach a certain predetermined target during trading hours. However, ERC 7265 triggers the circuit breaker based on the rate of asset loss and pauses asset transfers.

Potential Risks of ERC 7265

Although this standard aims to enhance DeFi security, it is not without drawbacks.

Since the circuit breaker settings are governed, for protocols with centralized governance or unethical practices, the protocol team could have the opportunity to control parameter settings to prevent asset loss, potentially affecting users' asset withdrawals in certain scenarios.

However, this standard is still in the proposal stage, and its approval is pending Ethereum committee review.