Article Author:Prathik DesaiArticle Compilation:Block unicorn
The screen went blank; people hadn't even realized what had happened. It was Monday, October 19, 1987. The Dow Jones Industrial Average plummeted more than 22% in a single day.
The screen went blank; people hadn't even realized what was happening. It was Monday, October 19, 1987. The Dow Jones Industrial Average had fallen more than 22% in a single day.
... The phone went silent. Before the traders could finish speaking, they realized that, adjusted for today's inflation, this amounted to over $4.7 trillion, exceeding the current GDP of Germany, the world's third-largest economy. That day... Our market, however, cannot be shut down. This is a question I've been pondering lately: In a market that never stops, is it truly necessary to have a stop button? The circuit breaker mechanism originated from the idea that markets, like people, need to breathe. The "Black Monday" of 1987 triggered a series of corrective measures: thresholds, ranges, and 15-minute halts. Later, after the "flash crash" of 2010, regulators added limit-up/limit-down rules to prevent individual stock crashes. In March 2020, when the COVID-19 pandemic panic swept Wall Street, these rules were triggered four times in ten days, effectively preventing market panic from escalating into a bank run. These corrective measures all relied on the same architecture: an exchange, a rulebook, and a clock. In the world of cryptocurrency, we don't have a clock, let alone an exchange. There's no opening or closing clock. If someone wanted to unplug it, they would even be disoriented and wouldn't be able to find the plug. While the tariff threat triggered the crisis, the real cause was the overheated long positions that had accumulated over the past few weeks. Within just a few hours, open interest dropped by nearly a third. At least $19 billion in positions were forcibly liquidated, the majority of which were long positions. The circuit breaker mechanism would be a technological nightmare and a philosophical violation. First, suppose centralized exchanges (CEXs) like Coinbase and Binance implement circuit breakers to prevent extreme liquidation events. While hundreds of thousands of users on CEXs would be frozen, thousands of users on decentralized exchanges (DEXs) would still be liquidated. Secondly, regarding the promise of decentralization, wasn't the original purpose of the cryptocurrency market to prevent any individual or institution from unilaterally deciding when you trade, stake, or withdraw? Wouldn't adding a circuit breaker mechanism to a market that should be permissionless contradict the very purpose of cryptocurrencies? Traditional market operations are centralized, making it easy to coordinate circuit breaker mechanisms. How do you coordinate centralized exchanges (CEXs) scattered globally, let alone decentralized exchanges that continuously process every block? So, what's the way forward? Does this mean we must weather the storm rather than pause? The circuit breaker mechanism, which may have prevented Bitcoin from falling below $3,500, also serves as a reminder to everyone in the cryptocurrency market that a single exchange is enough to bring what was once the world's largest cryptocurrency derivatives market to a standstill. Solana's multiple validator-coordinated restarts prevented the spread of panic during the pandemic, but weakened its decentralized narrative, a narrative that continues to plague the chain. Every pause in the cryptocurrency space may be effective at the time, but can be counterproductive in retrospect. This is because in the cryptocurrency space, the first question stakeholders ask themselves is: "Who gave you this right?" Therefore, in a crisis, it's not necessarily a complete halt to the code, but rather the avoidance of countless future crashes through dynamic collateralization ratios, rolling auctions, and circuit breaker mechanisms. The cryptocurrency industry's propaganda aims to create a market capable of withstanding these crashes. The challenge lies in designing a solution that doesn't follow traditional market models to achieve this goal.