Stock Circuit Breaker and Regulatory Compliance with Dual Data Input

[Shellfish011235]

Proposed Amendment: Stock Circuit Breaker and Regulatory Compliance with Dual Data Input
Title: Stock Circuit Breaker and Regulatory Compliance with Dual Data Input Amendment
Purpose:
To introduce a circuit breaker mechanism specifically for stock-related assets on the XRP Ledger to prevent excessive volatility and ensure regulatory compliance. This amendment aims to enhance the stability of stock trading on the XRPL DEX (Decentralized Exchange) and protect investors from extreme market conditions. The circuit breaker will use dual data inputs, combining on-ledger order book data and off-ledger oracle data to trigger halts in trading when necessary.

Details:
Definition of Stock-Related Assets:

Stock-related assets are defined as tokens representing shares of publicly traded companies or securities that track the performance of stocks.
Circuit Breaker Mechanism:

Implement a circuit breaker mechanism that halts trading of stock-related assets if the price change exceeds a predefined threshold within a specified time frame.
The threshold for triggering the circuit breaker is a 10% price drop within five minutes.
Dual data input sources:
On-ledger data: Price data derived from the order book of the issued token on the XRPL DEX.
Off-ledger data: Price data fetched from reliable oracles providing real-time market information.
If either data source indicates a 10% price drop within five minutes, the circuit breaker will be triggered.
Regulatory Compliance:

Ensure that the implementation of the circuit breaker adheres to relevant financial regulations and guidelines to protect investors and maintain market integrity.
Regular audits and compliance checks will be conducted to verify adherence to regulatory standards.
Oracle Integration:

Integrate with reliable price oracles to fetch real-time market data for stock-related assets. This data will be used alongside on-ledger data to monitor price changes and trigger the circuit breaker when necessary.
The list of approved oracles will be maintained by the community governance to ensure data accuracy and reliability.
Fallback Mechanisms:

Implement fallback mechanisms to handle oracle failures. If an oracle fails to provide data, the circuit breaker can rely solely on on-ledger data until the oracle service is restored.
Regularly test and validate oracle data to ensure consistency and reliability.
Governance and Configuration:

The community will govern the parameters for the circuit breaker mechanism, including the price change threshold and duration, through a decentralized voting process.
Amendments to the circuit breaker parameters can be proposed and voted on by the community to adapt to changing market conditions.
Implementation Steps:

Define and implement the logic for the circuit breaker mechanism.
Ensure that the logic includes fetching price data from approved oracles (off-ledger) and from the XRPL order book (on-ledger).
Deploy the circuit breaker mechanism to the XRP Ledger and provide tools for issuers to attach the circuit breaker to their stock-related assets.
Develop a monitoring system to oversee the operation of the circuit breaker and ensure compliance.
Compliance and Audit:

Establish a framework for regular compliance audits to ensure that the circuit breaker mechanism is functioning as intended and adhering to regulatory standards.
Provide transparency reports to the community and regulatory bodies on the performance and impact of the circuit breaker mechanism.
Designate an independent audit body to periodically review the system and provide recommendations for improvements.
Amendment Text:
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Amendment: Stock Circuit Breaker and Regulatory Compliance with Dual Data Input

Overview:

This amendment introduces a circuit breaker mechanism specifically for stock-related assets on the XRP Ledger. The circuit breaker aims to prevent excessive volatility and ensure regulatory compliance, thereby enhancing the stability and integrity of stock trading on the XRPL DEX. The circuit breaker will use dual data inputs, combining on-ledger order book data and off-ledger oracle data to trigger halts in trading when necessary.

Details:

1. Definition of Stock-Related Assets:

   • Tokens representing shares of publicly traded companies or securities that track the performance of stocks.

2. Circuit Breaker Mechanism:

   • A configurable circuit breaker mechanism halts trading of stock-related assets if the price change exceeds a predefined threshold within a specified time frame.
   • The threshold for triggering the circuit breaker is a 10% price drop within five minutes.
   • Dual data input sources:
     • On-ledger data: Price data derived from the order book of the issued token on the XRPL DEX.
     • Off-ledger data: Price data fetched from reliable oracles providing real-time market information.
   • If either data source indicates a 10% price drop within five minutes, the circuit breaker will be triggered.

3. Regulatory Compliance:

   • Implementation adheres to financial regulations and guidelines to protect investors and maintain market integrity.

4. Oracle Integration:

   • Integration with reliable price oracles to fetch real-time market data for monitoring price changes.

5. Fallback Mechanisms:

   • Implement fallback mechanisms to handle oracle failures. If an oracle fails, rely solely on on-ledger data until the oracle service is restored.

6. Governance and Configuration:

   • Community governance through decentralized voting will manage the parameters for the circuit breaker mechanism.

7. Implementation Steps:

   • Define and implement the logic to monitor price changes and deploy the circuit breaker to the XRP Ledger.

8. Compliance and Audit:

   • Regular compliance audits and transparency reports will ensure adherence to regulatory standards.

Implementation:

• The logic for the circuit breaker will include fetching price data from approved oracles and the XRPL order book, monitoring price changes, and halting trading if the price change exceeds the set threshold within the specified duration.
• Develop a monitoring system to oversee the operation of the circuit breaker and ensure compliance.

Governance:

• The community will govern the circuit breaker parameters through a decentralized voting process. Parameters can be adjusted by the community to adapt to changing market conditions.

Compliance:

• Regular compliance audits will be conducted to ensure the circuit breaker mechanism functions correctly and adheres to regulatory standards. Transparency reports will be provided to the community and regulatory bodies.
• An independent audit body will periodically review the system and provide recommendations for improvements.

Proposal:

• This amendment is proposed to enhance the stability and integrity of stock trading on the XRPL DEX by introducing a circuit breaker mechanism with dual data inputs and ensuring regulatory compliance.
  Steps to Propose the Amendment
  Draft the Proposal: Finalize the amendment text, ensuring all technical and regulatory aspects are covered.
  Community Discussion: Present the proposal to the XRPL community through forums, social media, and official channels to gather feedback and support.
  Amendment Submission: Submit the amendment proposal to the XRPL governance process. This involves creating a formal proposal and submitting it to the XRPL validators for consideration.
  Voting Process: Engage with validators and the community to vote on the amendment. The proposal needs to gain sufficient support from validators to be accepted and implemented.
  Implementation: Once approved, work with developers to implement the circuit breaker mechanism and integrate it with the XRPL. Ensure that the oracle integration and compliance checks are set up correctly.

[KarmaCoverage]

Point 6 may need to be updated to account for any Regulatory changes, so compliance is achieved.

[KarmaCoverage]

https://www.sec.gov/oiea/investor-alerts-bulletins/investor-alerts-circuitbreakersbulletin

[xVet]

Congratulations 🎉 to your first proposal Shellfish!

I can see IOU token issuers do this already, by enabling the freeze flag for a token and freeze trustlines according to rules the issuer wants the token to follow, for example freeze trustlines once a price volatility is reached and effectively halt trading.

Else i would have performance concerns if rippled would lock/unlock a trading pair automatically by itself, an attacker could force this to happen intentionally to attack the resources of the network.

[mvadari]

You say that this will be configurable and the "community" will decide which price oracles to trust. How will that work on-chain? Will it be the UNL voting, like with fees and amendments? What happens if a trusted price oracle is hacked to exploit this?

I really like that you're thinking about this sort of thing, and it's an interesting angle to think through to solve this problem, but IMO it should be done off-chain, at a token issuer and/or DEX UI level.

[Shellfish011235]

perhaps trying on xahau first 😊