Ethereum plans to thwart DeFi hacks with this proposal, here’s how
- A section of the Ethereum community proposed the ERC-7265 standard to reduce DeFi exposure to exploits.
- The approach has raised concerns about certain issues that DeFi is against.
As the leading project in Decentralized Finance (DeFi), the Ethereum [ETH] community has taken it upon itself to curb the incessant attacks in the ecosystem. Dubbed as the ERC-7265 or “circuit breaker”, the proposal which appeared on 3 July, has seen a lot of code commits between 4 and 5 July.
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Time to halt the exploits
Pseudonymous developer Diyahir, who led the conversation, noted that the ERC-7265 standard would help with a temporary halt on outflows when a breach is detected.
And since it planned on building a circuit breaker structure, then smart contracts can delay settlements while cooling down attempted withdrawals. The proposal mentioned,
“This circuit breaker does not assume the structure of the underlying protocol, and mainly serves as a pass-through vehicle for token outflows.”
Over the last 365 days, several DeFi projects have experienced numerous exploits and flash loan attacks. And as of this writing, it amounted to $2.85 billion. This has prompted questions about the security of storing funds there or transacting via the networks.
When asked if ERC-7265 could actually mitigate DeFi hacks, Nikolay Denisenko had this to say:
“Hackers are often able to exploit DeFi protocols due to their ability to rapidly drain funds before any countermeasures can be initiated. By incorporating a mechanism that can halt or limit the speed at which funds can be withdrawn, the likelihood of large-scale theft could be significantly reduced.”
The web3 developer and Chief Technical Officer at Neobank BrightyApp also mentioned that the risk of centralization should be looked at. He added that this was necessary to ensure that the standard isn’t “misused.”
Issues to consider
Nonetheless, Ethereum has maintained a relatively good number of transactions. At press time, DefILlama revealed that daily transactions on the network had crossed 900,000.
This suggests that there were market participants who still considered the blockchain and DeFi at large trustworthy to an extent. However, net inflows were not as high as they were compared to September 2022.
Based on the multi-chain TVL aggregator data, the metric was $10.91 million as of 4 July. This suggests that ETH issued with every block has reduced since the Merge, and investors might have remained cautious in interacting with the network.
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Robert Quartly, Chief Strategy Officer at Tier-1 exchange Bitrue also spoke to AMBCrypto on the matter.
According to Quartly, the proposition raises censorship and centralization issues which are against DeFi principles. As a result, he mentioned that the proposition could face resistance from the broader Ethereum community. He said,
“The proposal may encounter opposition from the community as it develops, even though the ERC-7265 standard offers an innovative approach to tackle DeFi hacks and looting.”