🔌Circuit Breakers

Safeguards that reduce systemic risk during volatility

Circuit breakers reduce systemic risk. They help prevent undercollateralization during extreme volatility. They also protect against oracle and operational failures.

---

Overview

Circuit breakers operate at multiple levels:

• Protocol level: system-wide collateral ratio thresholds

• Collateral level: asset-specific risk parameters

• Strategy level: sbvUSD safeguards

• Oracle level: price feed reliability checks

• Emergency level: multi-sig governance controls

This design aims to stop problems early. It also isolates risk when needed.

---

Collateral ratio thresholds

The protocol uses system-wide thresholds. When a market’s total collateral ratio (TCR) drops, restrictions apply.

Threshold	Acronym	Typical action
Minimum collateral ratio	MCR	Blocks new positions below ratio
Critical collateral ratio	CCR	Pauses debt creation
System collateral ratio	SCR	Triggers market shutdown

Collateral-specific thresholds

Collateral type	MCR	CCR	SCR
Bitcoin (BTC)	120%	130%	140%
Wrapped BTC (WBTC, tBTC)	120%	130%	140%
Exotic BTC (bgBTC)	125%	135%	145%
BTC LSTs	125%	135%	145%
Tokenized equities	150%	165%	180%

Tokenized equities use higher thresholds. They have market-hours, settlement, liquidity, and corporate action risks.

---

Borrow market shutdown

If TCR breaches the SCR:

• New borrowing is blocked

• Positions can only improve health (add collateral or repay debt)

• Collateral withdrawals can be paused

Shutdowns can be isolated to a collateral market. This helps prevent contagion.

---

Oracle failures

Oracle issues can trigger protective actions:

• Heartbeat monitoring and staleness checks

• Price deviation detection

• Multi-oracle comparisons

• Operations suspended if feeds are unreliable

The goal is to prevent incorrect liquidations. It also blocks borrowing against bad prices.

---

Tokenized equity safeguards

Market hours protection

• May pause actions when underlying markets are closed

• Adds transition monitoring around open/close

• Accounts for extended settlement windows

Concentration limits

Limit type	Threshold	Action
Per-asset cap	10% of tokenized equity TVL	New deposits blocked
Per-issuer cap	25% of tokenized equity TVL	New deposits blocked
Total allocation cap	40% of protocol TVL	No new tokenized equity accepted

Regulatory circuit breakers

• Quarantine if an issuer faces regulatory action

• Orderly unwind if an underlying equity is delisted

• Corporate action handling (splits, dividends, mergers)

---

sbvUSD strategy safeguards

sbvUSD is managed by BV Labs Ltd. Strategy-level controls can include:

Drawdown triggers

Drawdown level	Action
5% daily	Enhanced monitoring
10% daily	Rebalancing triggered
15% daily	Strategy pause for review
20% cumulative	Emergency strategy exit

Additional controls:

• Counterparty exposure caps

• Venue and partner limits

• Liquid reserves for redemptions (e.g., minimum 10% AUM)

• Execution throttles (reduce inventory, widen spreads, lower leverage, pause new risk)

---

Emergency procedures

Multi-sig controls

Emergency actions require multi-sig approval. Thresholds vary by severity.

Possible actions include:

• Pause deposits

• Pause borrowing

• Enable emergency redemptions

• Migrate collateral to backup custody

• Pause strategy deployment

• Upgrade contracts

Recovery mode

• Phase 1: stabilization

• Phase 2: recovery and gradual reopening

• Phase 3: post-mortem and parameter updates

---

Monitoring & alerts

BitVault monitoring can include:

• Protocol health: TCR, position health, liquidation capacity

• Market conditions: oracle deviations, volatility, liquidity, funding rates

• Strategy performance: NAV tracking, drawdowns, exposure

• Operational: oracle heartbeats, unusual activity

Circuit breaker parameters can change via governance. Changes should be timelocked and reviewable.