What Is the Role of an Exchange’s “Circuit Breaker” in Response to a Sudden Depeg?

A circuit breaker is an automated mechanism designed to temporarily halt trading or restrict order flow when the price of an asset moves outside pre-defined thresholds within a specific time frame. In response to a sudden stablecoin depeg, the circuit breaker would be triggered to pause trading, giving the market time to absorb the shock and prevent panic selling from spiraling out of control.

It acts as an emergency stop to protect the exchange's liquidation engine and insurance fund from being overwhelmed by extreme volatility.