Cross-Protocol Contagion Paths

Cross-protocol contagion paths are the interconnected channels through which financial distress in one decentralized protocol can spread to others, potentially causing a wider market crisis. This often occurs through shared collateral, where the same assets are used as backing in multiple platforms, or through complex dependencies where one protocol relies on the price feeds or liquidity of another.

If a major asset's price collapses or a protocol's smart contract is exploited, the impact can ripple through the ecosystem, leading to mass liquidations and a loss of confidence. Understanding these paths is critical for risk management.

It involves mapping the dependencies between protocols and assessing how shocks propagate through the system. By building more modular and isolated architectures, the industry aims to limit the impact of any single failure.