Protecting Human Investors with Blockchain-based Circuit Breakers

With the advancement of artificial intelligence and algorithmic trading, financial markets are increasingly vulnerable to the effects of fake news, requiring innovative protection mechanisms. In this paper, a blockchain-based circuit breaker (CB) is proposed to mitigate the financial losses of human traders in sell-the-news events potentially triggered by fake news. The effectiveness of the proposed mechanism is evaluated by modeling market dynamics involving bots and human traders as well as by simulating trading scenarios with and without blockchain-based CBs. The results show that human traders suffer significantly lower losses in markets where a blockchain-based CB is deployed. This paper demonstrates the potential of integrating blockchain technology into existing financial protection mechanisms, using oracle data to verify the authenticity of news events to improve investor security.