Could Automated DeFi Protocols Implement a Form of “Smart Contract Circuit Breaker” to Prevent Flash Crashes?

Yes, and some protocols are already experimenting with this concept. A smart contract circuit breaker could be designed to automatically pause certain functions, like liquidations or token swaps, if a pre-defined condition is met, such as a price oracle reporting a price drop of more than X% within a single block.

This could prevent cascading liquidations and oracle manipulation exploits. However, implementing them is complex and carries risks, such as creating centralization vectors (who controls the pause function?) or being exploited by savvy traders who anticipate the halt.