Circuit Breakers
Preventative Measure to cooldown BitVault
In addition to whitelisting institutional borrowers to ensure solvency, smart contract circuit breaker mechanisms are designed and can be implemented to prevent systemic undercollateralization and stabilize markets during extreme volatility. These safeguards primarily rely on threshold-based triggers and protocol shutdowns, supplemented by oracle reliability measures.
Key Circuit Breaker Components
1. Collateral Ratio Thresholds
The protocol enforces three critical thresholds:
MCR - 120% - Blocks new Trove openings/adjustments below this ratio.
CCR - 120% - Pauses debt creation and restricts collateral withdrawals.
SCR - 120% - Triggers market shutdown, freezing all borrowing and initiating redemptions.
When the Total Collateral Ratio (TCR) of a market falls below these thresholds, automated restrictions activate to limit risk exposure.
2. Borrow Market Shutdown
If TCR breaches the SCR:
New borrowing is blocked.
Existing Troves can only repay debt or adjust positions to improve collateralization.
Urgent redemptions are incentivized, allowing users to redeem bvUSD at favorable rates to clear undercollateralized debt.
Shutdowns act as a final safeguard, isolating distressed markets to protect the broader protocol.
3. Oracle Failures
Price feed disruptions trigger:
Suspension of operations requiring oracle data (e.g., liquidations, Trove adjustments).
Prevention of incorrect liquidations or borrowing during price feed inaccuracies.
By combining permissioned institutional borrowers, automated ratio checks, market isolation, and redemption incentives, BitVault mitigates bank runs and bad debt accumulation while maintaining borrower flexibility.
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