How Can a Smart Contract Be Designed to Handle Unforeseen Market Events, like a Flash Crash, in Derivatives Trading?

To handle a flash crash, a smart contract can be designed with protective mechanisms. It can use a time-weighted average price (TWAP) oracle instead of a spot price feed, which smooths out short-term volatility and prevents liquidations based on a brief price spike or dip.

Another method is to implement a "circuit breaker," a function that automatically pauses certain contract operations, like liquidations, if the price of an asset changes by more than a predefined percentage within a short period. These measures help ensure that the contract's execution is based on stable market conditions rather than anomalous, short-lived events.