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ETH DeFi ‘circuit breaker’ hack could reduce losses by up to 70% – developer

admin by admin
July 7, 2023
in CryptoCurrency
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ETH DeFi ‘circuit breaker’ hack could reduce losses by up to 70% – developer
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A decentralized finance “circuit breaker” could prevent billions of dollars worth of crypto stolen from DeFi protocols in 2022, according to the developer of the newly published ERC-7265 proposal.

A new Ethereum Request for Comments (ERC) was published on Github on July 3rd. In this, lead developer Diahir Campos proposed a standard for DeFi “circuit breakers”. It essentially aims to establish a standard for a smart contract with the ability to prevent suspiciously large token outflows from DeFi protocols.

Last year was the biggest year ever for crypto hacks, with at least $3.1 billion stolen from DeFi protocols, 65% of which originated from cross-chain bridges.

Speaking to Cointelegraph, Campos said that the circuit breaker could have prevented the loss of billions.

“With rugs that weren’t there, you could probably save 70% of the money (…) with minimal impact on users.”

Campos revealed that he was one of those who lost funds in the March $195 million Euler Finance attack that affected 11 other protocols.

“In fact, I was one of the depositors in the Euler hack,” he said.

“From that experience, I look at TVL charts and trades and it really comes down to the question:”

“Why would you ever let go of your 100% TVL in 10 seconds or five blocks?”

A typical DeFi protocol would lock up roughly 20% of the total value entering or leaving a project in a day.

“Once you start talking 30% or 40%, that’s when you really start to separate exploitation versus daily use,” Campos said.

The proposed standard has not been without controversy. DeFi researcher Chris Blake was among the skeptics on Twitter that Circuit Breaker could potentially be used for nefarious purposes.

Campos added that Circuit Breaker is not perfect for every DeFi protocol and does not guarantee that the protocol is secure. He added that Circuit Breaker will be an “opt-in thing” for DeFi projects.

He also believes that a well-designed circuit breaker will need to strike a balance between protecting users and preventing “false positives”, which would be extremely disruptive whenever the breaker trips.

Connected: Multichain MPC Bridge sees outflow of over $100 million, sparking exploit fears

However, a circuit breaker would be useless in cases of internal rug pulling, as it could easily be disabled by the protocol controlling team.

Campos is a smart contract developer at Hydrogen Labs. He said work on the proposed standard began during a hackathon in Tokyo in April with Hydrogen Labs co-founder Meir Banks.

The idea for DeFi circuit breakers was inspired by similar circuit breakers that have been used by global stock exchanges for decades.

“At DeFi, we are not trying to calm the markets which is what (the New York Stock Exchange circuit breaker) intended, rather we want to prevent hack damage,” wrote Campos in a June 27 blog post.

Other developers working on the standard include Philippe Dumont, founder and CEO of Dereg, and Blagoj Dimowski, co-founder and former CTO of Diagonal Fiancé.

Campos said the standard is still being shaped at this stage, but is confident it will be ready “within months” which will put it in a “really good stage” to be integrated into the protocol.

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