Definition ∞ Systemic Protocol Failure refers to a catastrophic event where a fundamental flaw or vulnerability in a core decentralized finance protocol leads to widespread disruption and loss across interconnected systems. This can stem from critical smart contract bugs, oracle exploits, or economic design weaknesses that cascade throughout the ecosystem. Such failures pose a significant risk to market stability.
Context ∞ The potential for systemic protocol failure is a serious concern within the rapidly expanding DeFi landscape, with discussions often highlighting the interconnectedness of various protocols. Recent incidents, though not always systemic, underscore the need for robust risk management and comprehensive security audits. Regulators are increasingly scrutinizing these risks to prevent broader financial instability.
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