The ERC-7265 token standard proposes adding a “circuit breaker” mechanism to DeFi protocols to stop the transfer of Ethereum-based tokens in the event of a hack.
Decentralized finance has grown significantly and has become an integral part of the global crypto markets. However, its continued growth heavily depends on how secure the technology is against attacks. According to data from, over $5 billion in the total value of assets has been lost in DeFi protocols to date. To remedy this situation, the Ethereum community has come up with a new token standard called ERC-7265.
Re-entrancy attacks, logic errors, and manipulation of oracles can cause these hacks. The circuit breaker would operate on a smart contract interface and be independent of the underlying protocol structure. The circuit breaker primarily acts as a conduit for token transfers and will simply pause token transfers on a protocol when a predetermined threshold for a specific metric is surpassed.
The transfer of tokens will halt until the protocol issue is solved. The circuit ERC-7265 standard will work to prevent losses from malicious protocol attacks. For developers working on ERC-compliant protocols, the ERC-7265 offers the flexibility to customize the circuit-breaking mechanism to a protocol’s specific needs.
The circuit breaker is customizable in one of two ways. It can delay settlements and temporarily hold custody of assets during the post-protocol breach phase. Additionally, it could reverse any attempted outflows. The two approaches give developers full autonomy while boosting protocol stability.The Role of the ERC-7265 in DeFi Risk MitigationIncreases security
Adding a circuit breaker mechanism can prevent significant losses when unusual market situations occur or when specific metrics are surpassed which may indicate malicious activity. The circuit breaker pauses token outflows, and this serves to protect customer assets.During unpredictable market conditions, the circuit breaker can halt token transfer to reduce the possibility of catastrophic losses. Protocol users can be more proactive in resolving any issues while token outflows remain halted.
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