- The Ethereum community has proposed a new security measure known as ERC 7265, or the ‘Circuit Breaker’, to combat the increasing number of security breaches in DeFi.
- The Circuit Breaker is designed to halt all outgoing transactions within a smart contract when a certain threshold is breached, protecting DeFi protocols from hackers by preventing the rapid draining of assets.
- The proposal comes in response to several high-profile DeFi hacks, with ERC 7265 designed primarily for DeFi protocols that can be upgraded by governance.
Driven by a series of recent high-profile hacks, a group of dedicated Ethereum community members have collaborated on the Ethereum Request for Comments (ERC) 7265, intending to bolster the security of DeFi protocols. This new standard seeks to integrate a ‘Circuit Breaker’ into DeFi protocols, essentially acting as a fail-safe in smart contracts.
The Circuit Breaker, when triggered, would halt protocol-wide token outflows when a predefined metric threshold is exceeded, thereby safeguarding funds. Ethereum developer ‘Philogy’, who is contributing to the proposal, explained that it “allows devs to easily add a back-stop in their contract that stops assets before they leave the contract in the event of a hack.”
According to Fluid Protocol’s ‘Meir Bank’, most protocols simply lack enough response time to react to a hack. “When a hack happens, the attacker will no longer be able to drain an entire contract in seconds. The majority of funds can be recovered,” he added, highlighting the effectiveness of the Circuit Breaker.
Research conducted by the team underlines the urgency of this proposal. Data shows that most DeFi protocols do not experience 25% to 40% daily Total Value Locked (TVL) drawdowns unless there is a security breach. Indeed, the Q2 De.Fi Rekt Report reveals a staggering loss of over $200 million in just three months due to DeFi hacks and exploits.
Responding to an Exploitable Landscape
This proposed solution emerges against a backdrop of an upswing in security breaches across the DeFi landscape. Protocols including Poly Network, Chibi Finance, Sturdy Finance, Jimbos Protocol on Arbitrum, Hundred Finance, Sentiment, Deus Finance, and Tornado Cash, have all been victims of malicious actors. Once a protocol is compromised, the damage can often be catastrophic, causing the total value locked to plummet to zero within seconds.
In the face of these vulnerabilities, the ERC 7265 proposal holds substantial promise. As Meir Bank pointed out, “There are very few downsides and many upsides for governed DeFi protocols to integrate ERC 7265.” Notably, the Circuit Breaker is primarily intended for DeFi protocols that can be upgraded by governance, a common practice in DeFi.
The Future of DeFi Security
While ERC 7265 is currently a proposal and awaits approval from the broader Ethereum community, it represents a significant step in the ongoing battle against DeFi hacks. If accepted and implemented by core developers, it could become a critical tool in protecting DeFi protocols from devastating losses.
The adoption of ERC 7265 could not only help build trust within the community but also shape the future of DeFi security. The Ethereum community’s proactive approach in proposing ERC 7265 underlines the industry’s commitment to tackling security issues head-on. In the dynamic world of DeFi, one thing remains certain: security must remain at the forefront of every attempt at innovation. The Ethereum community’s proposal of the ‘Circuit Breaker’ standard sets a precedent for protective measures in DeFi, and it will be interesting to observe its influence on the future of DeFi security.
