Protocol Failure Propagation

Protocol failure propagation describes the mechanism by which a technical or economic failure in one DeFi protocol spreads to others due to shared infrastructure or liquidity. This can happen through shared oracle feeds, common governance structures, or direct integration between smart contracts.

When a failure occurs, it can disrupt the operation of connected protocols, leading to loss of funds or loss of confidence. This highlights the importance of modularity and risk isolation in protocol design.

Understanding how these failures move through the system is essential for developing robust defenses and contingency plans. It is a core concept in the study of systemic risk within decentralized financial systems.