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Simple Summary

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Automated system to prevent the exchange or transfer of individual synths if their prices shift by more than 25% (crypto) or 10% (traditional) in a single update.

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Abstract

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Sythetix uses a mix of decentralised oracles from Chainlink networks (for traditional markets) along with our centralized SNX Oracle (for crypto markets - to be phased out in SIP-36). In order to protect the integrity of the system, large abnormal price shifts in price updates of a synth will trigger a circuit breaker so that the synth becomes suspended from exchanging and transferring until it is investigated. Upon investigation by the Protocol DAO, the synth will be resumed following any remediations required.

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Motivation

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The primary motivation is security of funds. There have been occasions where synths have needed to be disabled immediately, such as the chainlink oracle issue with XAG-USD mispriced as XAU, causing sXAG to be mispriced and loss of funds. This gives the team and community time to investigate the situation and ensure that funds are not at risk.

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Specification

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Phase one will use a continuous process (an off-chain oracle) to monitor the prices of assets in both the Synthetix ExchangeRates contract and the associated AggregatorInterface contracts from Chainlink. This circuit breaker oracle will have the power to suspend any synth at any time via the SystemStatus contract which was implemented in SIP-44).

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If crypto prices are detected to have moved between a single update of 25% or more in either direction, the circuit-breaker oracle will set the synth as suspended using the System.Status.suspendSynth() function with an assigned reasonCode.

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If traditional prices (forex, commodities, equities) on the associated AggregatorInterface contracts from Chainlink deviate from the off-chain oracle price sources by 10% or more, the circuit-breaker oracle will set the synth as suspended. The lower threshold for traditional markets compared to crypto is based on the volatility of the Forex, commodities and equities synths currently on Chainlink compared to the volatility of crypto synths.

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From SIP-44, synth pausing means that the synth in question:

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The price oracle will continue to publish the synth prices on chain to the ExchangeRates contract however users will not be able to exchange or transfer them until the price shock is investigated as legitimate before resuming. The behaviour would mimic decentralised chainlink oracles which continue updating prices onchain regardless of the status of the synth's traded on synthetix exchange.

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Once paused, we have a number of systems in place to alert the protocol DAO in the scenario where the circuit breaker is tripped and requires investigation before the protocol DAO re-enables the synth.

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The synth cannot be resumed by the circuit-breaker oracle due to access control restrictions.

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Resumption of a synth that has been suspended by the circuit breaker will be possible only by the Protocol DAO (see Rationale below) after investigating the price shock and confirming oracle feeds are stable.

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Rationale

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This phased approach is designed to give us as much protection now as possible while we still have centralised services yet also planning for the next decentralized phase.

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In order to decentralize the resuming of synths process, work is ongoing to connect an Aragon DAO contract (or similar token holder voting system) so that SNX stakers are able to vote to resume without the Protocol DAO's intervention (a separate SIP will address this).

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The next phase of this circuit breaker will be performed on-chain by modifying the exchange functionality within Synthetix (also another SIP). This decentrazlied approach will alleviate the need for the circuit-breaker oracle altogether. Instead of an oracle, the check will performed on-chain via the Synthetix.exchange() function itself, so that an exchange from / into the synth will pause the synth if there has been a price update above the threshold. Once the decentralized circuit-breaker is implemented, the circuit-breaker oracle will be deactivated.

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Test Cases

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  1. When the underlying price of any crypto synth, tracked via the ExchangeRates contract, changes by more than 25% up or down between a single update, then the SystemStatus.suspendSynth(synth) function will be automatically invoked by the circuit-breaker oracle.
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  2. When the underlying price of any traditional synth, tracked via a Chainlink AggregatorInterface, deviates by more than 10% from the off-chain oracle price sources, then the SystemStatus.suspendSynth(synth) function will be automatically invoked by the circuit-breaker oracle.
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  3. When the SystemStatus.resumeSynth(synth) function is invoked by the circuit-breaker, it fails as it does not have access
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  4. When the SystemStatus.resumeSynth(synth) function is invoked by anyone other than the ProtocolDAO, it fails (until such time as a community vote via token holders can be implemented)
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  5. When the SystemStatus.resumeSynth(synth) function is invoked by the Protocol DAO, the synth is successfully re-enabled.
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Implementation

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Copyright

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Copyright and related rights waived via CC0.

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