In the dynamic world of decentralised finance (DeFi), maintaining stability amid volatile market conditions is paramount. Recognizing this need, DBOE, the pioneering decentralised exchange (DEX), has introduced an innovative Circuit Breaker mechanism to fortify its platform against adverse events and ensure the protection of user assets.
Understanding Circuit Breakers:
Circuit breakers have long been a staple in traditional finance (TradFi) markets, serving as crucial mechanisms to maintain stability and prevent excessive volatility. In the stock market, for example, circuit breakers are implemented to temporarily halt trading activities in the event of significant price fluctuations. This pause allows market participants to reassess their positions and mitigate potential risks.
In the decentralised finance (DeFi) space, several prominent projects have adopted circuit breakers to protect their platforms and users’ assets during times of market turmoil. Ethereum-based protocols like Compound Finance and MakerDAO have leveraged circuit breakers to halt trading activities temporarily during periods of extreme volatility or system vulnerabilities.
DBOE’s Dynamic Circuit Breaker System:
Chainlink is one of the pioneering blockchain networks that facilitates the implementation of circuit breaker mechanisms. As a trailblazer in the DeFi space, DBOE has leveraged Chainlink Price Feeds to implement its own Circuit Breaker, setting a new standard for exchange resilience. This system utilises Chainlink Automation to monitor exchange rates and ensure that they remain within DBOE’s tolerance levels relative to market prices. Learn more about implementing circuit breakers with Chainlink Price Feeds here.
How DBOE’s Circuit Breaker Works:
DBOE’s Circuit Breaker relies on two key factors to ensure the integrity and stability of its platform. First, it monitors the last update time from two price feeds—one for the base token and one for the quote token. If the last update time exceeds Chainlink’s heartbeat thresholds i.e. 30 minutes, highlighting a potential risk, a market halt is needed. This precautionary measure ensures traders have time to reassess their trading decisions, maintaining market integrity.
Second, DBOE’s Circuit Breaker monitors the price feed price, which represents the ratio of the base token price over USD versus the quote token price over USD. If this price exceeds the last traded price by a certain time-dependent percentage range, the system considers the price to be out of band. The older the last transacted price, the bigger the range. The range is floored by a fixed number e.g. 1500 basis point or 1.5%. Essentially, when the new price is out-of-range over the last transacted price, matching will not happen and the market will have to wait for a period so that the range is widened or the price is corrected at the oracle level i.e. cooling period. This dynamic price circuit breaker mechanism enables DBOE to maintain price integrity and protect users’ assets in the face of market fluctuations.
DBOE’s circuit breaker system is rigorously tested to ensure robustness and reliability, with mechanisms in place to revert orders in cases of price limit breaches and oracle downtime. These tests demonstrate DBOE’s commitment to safeguarding user assets and maintaining platform integrity.
In conclusion, DBOE’s implementation of an innovative Circuit Breaker mechanism underscores its commitment to prioritising user safety and platform stability in the ever-evolving DeFi landscape. By proactively safeguarding against adverse market events, DBOE continues to lead the charge towards a more secure and resilient decentralised trading ecosystem.
