Translated by: Block unicorn

Small annoyances can sometimes save lives.

Think about that sound in your car that keeps reminding you to buckle your seatbelt. This constant reminder can be annoying, and many people complain about it. But it is this incessant reminder that prompts countless individuals to fasten their seatbelts. What is the result? According to the Insurance Institute for Highway Safety (IIHS), it is estimated that these continuous reminders save about 1,500 lives each year in the United States alone. It truly is a lifesaving device.

Small disturbances can sometimes help you save a lot of money.

A frustrating phenomenon in modern banking is: when you think you have completed a wire transfer, you are suddenly interrupted. You enter the account number, routing number, and recipient’s name. At this point, the bank does not immediately complete the transfer but pauses to verify whether the recipient's name matches the account information. This additional step disrupts the flow. As the product team puts it, this is friction. However, this pause has become one of the most effective payment security measures globally.

The "Confirmation of Payee" service provided by Pay.UK allows individuals and institutions in the UK to make transfers, currently covering over 99% of various payment channel transactions. The volume of audits for this service has increased from 14,000 per month in June 2020 to over 70 million per month by July 2025. It has reduced "account error" transactions by 59%, and decreased economic losses for end-users by 20% to 40%.

This is crucial as the financial industry has been striving for seamless transactions for over a decade. We have seen various efforts such as "tap once," "swipe once," and "click to transact," attempting to make money flow silently in the background. The instinct in the financial industry often views every pause as a flaw. As the industry evolves, it becomes increasingly obsessed with seamless connections. However, this evolution repeatedly reminds us that certain so-called "frictions" are actually necessary brakes to prevent system collapses.

The Need for Brakes in Traditional Finance

Today, the financial industry has embedded these limiting measures into every new infrastructure it builds.

In the U.S., brokers with market access qualifications must implement risk control measures to limit their financial risk exposure and ensure compliance with regulatory requirements. The U.S. Securities and Exchange Commission (SEC) stated the purpose of Rule 15c3-5 is to address risks posed by automated high-speed trading and prevent unrestricted access to exchanges.

The reason the financial world revisits this lesson repeatedly is simple: once the brakes fail, the damage often exceeds what institutions can bear and recover from.

In 1987, on Black Monday, the Dow Jones Industrial Average fell 22% in a single day. The Brady Commission recommended adding a pause button to the " circuit breakers," stipulating that trading should be paused for 15 minutes when the market drops by a certain percentage. Without these limits, Black Monday would have resulted in a $1.7 trillion loss in global market value in one day. Adjusted for inflation, that loss is equivalent to over $4.7 trillion today, exceeding the current GDP of Germany, the world's third-largest economy.

These brakes have made the financial sector understand that sometimes the only way to maintain speed is to briefly stop the machine. In other situations, a brief pause can resolve issues.

In August 2012, Knight Capital Group faced a software malfunction, causing its computers to trade millions of shares in just 45 minutes. This failure resulted in a loss of $440 million in less than an hour, nearly pushing the firm to bankruptcy. Knight Capital Group optimized its system for speed, which is critical in market trading. However, an uncontrolled system without brakes, even the fastest system, can crash instantly. The lesson? The faster the system, the more important the braking mechanism.

The retail financial sector itself also faces many issues.

For years, brokers have been striving to make high-risk products easy to operate to drive retail user growth. They persevered, only to ultimately lose trust. In its 2021 disciplinary action against Robinhood, FINRA pointed out that the firm failed to conduct due diligence before approving clients for options trading and heavily relied on unregulated automated "approval bots." This nonprofit self-regulatory organization responsible for investor protection claimed Robinhood’s system approved clients based on inconsistent or illogical information. FINRA stated that the company's system allowed applicants who clearly posed questionable risks to be approved.

Robinhood's system was optimized for fast processing of applications to avoid potential clients waiting. But what it lacked was a meaningful pause between curiosity and reassurance. It was fast but had no brakes.

The Unique Case of Cryptocurrencies

Recently, the Aave-CoW incident in the cryptocurrency space has raised the demand for braking mechanisms in finance to a whole new level.

On March 12, 2025, a user executed a $50 million swap transaction through CoW Swap (a decentralized exchange (DEX) aggregator designed to protect users from front-running bots). The transaction was integrated into the front end of the DeFi protocol Aave. Due to insufficient liquidity, the user ultimately received only $36,930 in tokens while paying $50 million.

Although Aave explained in its post-analysis that the user ignored clear warnings of high price impacts, its founder and CEO Stani Kulechov posted on X that the Aave team "will study how to improve these safeguards."

Setting terminology aside, it is evident: a fast interface allowed a catastrophic trade to go too far before the system could react. While some may question the user's judgment and ignorance of warnings, viewing this incident as an isolated case for the development of new financial infrastructures like blockchain is both convenient and counterproductive.

If cryptocurrencies want to avoid repeating mistakes, the solution lies in building a smarter execution layer. Some decentralized finance (DeFi) trading protocols are already moving in this direction.

For instance, Definitive.Fi believes that large on-chain transactions should not simply opt for a technically feasible path for processing. They should be simulated before submission and validated against actual market conditions, splitting into smaller shares when necessary, and routed through broader liquidity pools. Therefore, an excellent trading system should check not only whether it can complete a transaction but also the best path for fulfilling the order.

For any emerging infrastructure, trust and additional security measures are not optional features, especially in finance. A product that makes trading, lending, or fund transfers easy and convenient can help drive fast development, but once a failure occurs, it can have severe consequences. We have seen this pattern in all the traditional financial cases mentioned above. Systems attempt to minimize visible friction points— even if these friction points are necessary limits— to obscure their complexity and hope that a smooth operational experience can gain more consumer trust.

However, confidence in the financial field is rarely built this way. It often comes from financial institutions identifying critical moments that require intervention and taking some uncomfortable but necessary actions to prevent misconduct. The Confirmation of Payee mechanism from Pay.UK is a prime example. While being repeatedly asked to confirm a bank account name is certainly not a pleasant experience, it does effectively stop potential mistakes that could result in costly and irreversible losses.

Stani from Aave understands this well. For this reason, he acknowledges that clients are not always clear about the order flow process, who the payer is, or whether a better trading channel exists. This understanding is particularly important in emerging industries like cryptocurrencies and blockchain, as few users grasp the technical process of trades and the consequences of each click. In such cases, acknowledging pain points and taking action to resolve them is crucial for enhancing consumer trust.

The tricky part is that braking mechanisms are only a fine line away from random inconveniences and frictions. A good braking mechanism will not completely reduce speed but applies slight resistance with precise timing. Taking the Aave-CoW incident as an example, we can imagine a good braking mechanism as an economically rationality check. It allows the system to scan more trading venues before routing, preventing order intentions from falling into the hands of wrongdoers, simulating outcomes before executing, and splitting large transactions to avoid penalizing users for being too large in scale. These mechanisms are key to ensuring financial infrastructure is trustworthy.

This distinction is important because the financial field still has some pain points that need to be addressed. For example, cumbersome and useless paperwork, inefficient compliance processes slowing down the entire process, hidden fees disguised as part of the process, and daunting registration processes can scare off new users.

None of these should be defended. Setting "brakes" is not an argument for designing uglier products or adding pop-up ads, but rather to design a pause point before users make irreversible decisions based on incomplete information. This is especially true when clients handle large orders in a downturn, sell high-risk products, explore new payment methods, and perform one-click operations (where risks are immediate, and speed is not the primary consideration).

This contains some business insights.

The financial industry often speaks of the need to build safeguards only after product-market fit is achieved. This sequence is incorrect. In finance, safeguards are an indispensable part of product-market fit. If implemented correctly, safeguards can even facilitate rather than hinder. The case of Pay.UK further confirms that the Confirmation of Payee is not an optional anti-fraud feature but has become a "practical service" that clients expect to see when trading with the system.

Emerging financial infrastructures, such as blockchain, aim to earn trust and withstand errors, scandals, and market pressures like traditional finance. But this is no easy task. They must think more proactively about how to earn trust before winning users because only by earning trust will users follow naturally. But the reverse may not necessarily be true.

If blockchain can implement strategic braking measures, its speed will surpass any other financial infrastructure.

That's all for today; we'll see you in the next article.

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