The Ethereum community has proposed a new token standard to protect decentralized finance (DeFi) protocols from hacks and exploits. A ‘circuit breaker’ would be deployed to prevent large amounts of tokens from being drained from protocols.
On June 3, members of the Ethereum community collaborated on Ethereum Request for Comments (ERC) 7265 to protect DeFi protocols.
Ethereum DeFi Protocol Backstop
According to the proposal, the standard outlines a smart contract interface for a ‘Circuit Breaker.’ When triggered, it would temporarily halt protocol-wide token outflows when a threshold is exceeded for a predefined metric.
The circuit breaker “mainly serves as a pass-through vehicle for token outflows.” Moreover, it doesn’t affect the structure of the underlying protocol.
Ethereum developer ‘Philogy’ who is collaborating on 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,’ who announced the ERC-7265 Circuit Breaker, “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.
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Research and data analysis conducted by the team revealed that most DeFi protocols do not have 25% to 40% daily TVL drawdowns unless there is a hack.
“There are very few downsides and many upsides for governed DeFi protocols to integrate ERC 7265,” Bank concluded.
According to the De.Fi Rekt report for Q2, more than $200 million was lost in that three-month period alone. Moreover, the total of lost funds in 2023 due to DeFi hacks and exploits reached $667 million in H1.
ETH Price Outlook
Ethereum failed to reach the crucial $2,000 level during the latest crypto rally. As a result, it has begun to pull back again, dropping 1% on the day to $1,936 at the time of writing.
In the short term, the ETH price appears to be breaking down back to the $1,900 support zone.
Despite bullish fundamentals such as a surge in staking, Ethereum does not appear to have the momentum for its own rally.
Moreover, it is likely to continue in the shadow of Bitcoin. BTC is currently correcting from its 2023 high late last month.
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