Read the passage and determine the author's argument regarding decentralized finance (DeFi):
"While decentralized finance protocols eliminate intermediaries and reduce transaction settlement times, the complete absence of centralized circuit breakers leaves markets defenseless against cascading liquidity runs. When algorithmic stablecoins lose their pegs, self-executing smart contracts trigger fire-sale liquidations that accelerate market collapse."
The author argues that the lack of centralized circuit breakers in DeFi:
Answer and explanation
Correct answer: A. amplifies catastrophic market collapses during liquidity runs
- Step 1: Trace the stated vulnerability: the absence of circuit breakers leaves markets defenseless, causing smart contracts to trigger fire sales that 'accelerate market collapse'.
- Step 2: The author's argument is that algorithmic decentralization exacerbates systemic panic by automating fire-sale liquidations.
Answer
amplifies catastrophic market collapses during liquidity runs.
Why not the others: 'guarantees complete immunity from all financial market panics' is the direct opposite of the author's warning; 'permanently prevents smart contracts from executing transactions' contradicts the fact that smart contracts execute automatically; 'proves that traditional commercial banks are wholly obsolete' is unsupported.
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