Hack Losses Could Be Lowered By 70% With ETH DeFi’s ‘Circuit Breaker’
After being hacked by Euler Finance in March, Diyahir Campos, who worked on the new ERC plan, wanted to do something.
The developer of the new ERC-7265 plan says that a “circuit breaker” for decentralized finance (DeFi) protocols could have stopped billions of dollars worth of crypto from being stolen from DeFi protocols in 2022.
On July 3, GitHub put up a new Ethereum request for comments (ERC). In it, lead engineer Diyahir Campos suggested a standard for a DeFi “circuit breaker.” Its main goal is to set a standard for a smart contract that can stop a DeFi system from sending out large amounts of tokens that seem suspicious.
1/ Announcing ERC 7265: Circuit Breaker
We are fixing the biggest problem with DeFi Security – lack of response time to mitigate hacks.
Last year was the worst year ever for hacking crypto. At least $3.1 billion was stolen from DeFi protocols, and cross-chain links were responsible for 65% of that.
Campos told Cointelegraph that circuit breakers could have stopped billions of dollars of damage.
“The ones that weren’t rugs, you could probably save 70% of the money […] with minimal impact to users.”
Campos said he was one of the many people who lost money in March’s $195 million Euler Finance attack, which spread to 11 other protocols through a virus.
“Actually, I was one of the depositors in the Euler hack,” he said.
3/ Our data analysis shows that DeFi Guardian could have saved more than 50% of losses from the recent @eulerfinance hack.
Instead of draining the entire TVL of Euler within moments, the Euler hacker would have been rate limited, saving tens of millions of dollars for users. pic.twitter.com/Nuck06iQIo
“From that experience, I’m looking at the TVL [total value locked] charts and the transactions that happened, and it really begged the question:”
“Why would you ever let 100% of your TVL leave in 10 seconds or five blocks?”
About 20% of the total value locked would enter or leave a project in a day with a standard DeFi protocol.
“Once you start talking 30% or 40%, that’s when you really start separating exploits versus daily usage,” said Campos.
Not everyone has agreed with the suggested standard. Chris Blec, a DeFi expert, was one of the skeptics on Twitter who was worried that the circuit breaker could be used for bad things.
Oh dear Lord. What is this nonsense?
Giving DeFi devs a protocol-level method that allows them to freeze your money forever?
Campos said that the circuit breaker isn’t good for every DeFi protocol and doesn’t mean that a protocol is safe. He said that the circuit breaker would be a “opt-in thing” for DeFi projects.
He also thinks that a well-designed circuit breaker must find a balance between keeping people safe and avoiding “false positives,” since it would be very annoying if the breaker went off all the time.
But an internal rug pull would make a circuit breaker useless because the team in charge of the protocol could just turn it off.
A quick exploration of the power of circuit breakers in DeFi and their limitations in preventing costly hacks 🔧https://t.co/bZKeWJyUkI
Campos is a smart contract worker at Hydrogen Labs. He said that he and Meir Banks, the co-founder of Hydrogen Labs, started working on the suggested standard in April at a hackathon in Tokyo.
The idea for the DeFi circuit breaker came from the fact that global stock markets have used similar circuit breakers for decades.
“In DeFi, we aren’t trying to calm the markets, which is the intention of the [New York Stock Exchange’s circuit breaker] rather we want to prevent hack losses,” wrote Campos in a June 27 blog post.
Philippe Dumonet, the founder and CEO of DeReg, and Blagoj Dimovski, the co-founder and former chief technology officer of Diagonal Fiance, are two other people working on the standard.
Campos said that the standard is still being worked on, but he is sure that it will be ready “within months,” which would put it in “a really good stage” to be added to protocols.
