Circuit Breakers

Circuit breakers represent the final safeguard layer, activating under conditions that exceed both the DMM's normal operating range and the PSM's intervention capacity. These mechanisms monitor sustained deviations between on-chain prices and oracle references, oracle data staleness, and rapid liquidity changes. When predefined thresholds are exceeded, circuit breakers automatically throttle or halt specific protocol operations.

The circuit breaker system operates in three tiers. Warning mode activates when deviation exceeds one percent for a sustained period, increasing monitoring intensity and sending alerts but making no operational changes. Throttle mode engages at two percent sustained deviation, reducing the magnitude of price updates and slowing recentering operations to prevent rapid system adjustments during uncertain conditions. Halt mode triggers at five percent sustained deviation or under severe oracle failures, temporarily pausing price updates and stabilization mechanisms entirely.

During a halt, users can still exit positions but the protocol will not process new price updates or rebalancing operations until the triggering condition resolves. This prevents the protocol from making decisions based on potentially corrupted data. If a halt persists and the issue cannot be resolved through normal recovery procedures, the protocol includes emergency procedures to return user funds in stablecoins rather than leaving capital locked indefinitely.

The three-tier design with explicit hysteresis prevents rapid oscillation between states. Activation thresholds differ from deactivation thresholds, ensuring the system does not rapidly toggle between warning and normal operation or between throttle and warning. This stability in state transitions makes circuit breaker behavior predictable and gives each state time to serve its intended purpose.