Hello,
Small annoyances can be life-saving.
Consider the reminder in your car that keeps beeping until you buckle your seat belt. The persistent beep is annoying, and many complain about it. But that persistent beep likely drives countless people to tighten their belts. The result? The Insurance Institute for Highway Safety (IIHS) estimates that these persistent reminders save about 1,500 lives every year in the U.S. alone. Life-saving indeed.
Small annoyances can also be fortune-saving.
One such annoyance in modern banking occurs when you think you have completed a wire transfer, only to be interrupted. You enter the account number, routing number, and recipient name. Now, instead of completing the transfer, your bank pauses to confirm whether the payee name matches the account name on file. It adds an extra click. Breaks a rhythm. It can feel, in product teamsâ language, like friction. Yet this pause has become one of the most effective ways to secure payments worldwide.
The âConfirmation of Payeeâ service by Pay.UK, which enables individuals and organisations in the UK to transfer money, today covers more than 99% of payments made through various payment channels. This service has grown from 14,000 checks a month in June 2020 to more than 70 million checks monthly by July 2025. It has reduced âincorrect accountâ transactions by 59% and financial losses to end-users by 20-40%.
This is crucial at a time when the financial industry has spent over a decade trying to make transactions invisible. We have seen âTap Onceâ, âSwipe Onceâ, âTrade with a Clickâ, and similar efforts to make money move silently in the background. The industryâs instinct has often been to treat every pause as a flaw. As finance evolved, it became increasingly obsessed with seamlessness. But this evolution has repeatedly reminded us that some of these âfrictionsâ are, in fact, essential brakes that keep the system from derailing.
TradFiâs Need for Brakes
Today, finance has embedded these brakes into every new piece of infrastructure it builds.
In the U.S., brokers with market access are required to implement risk controls that limit their financial exposure and ensure regulatory compliance. When the Securities and Exchange Commission (SEC) adopted Rule 15c3-5, it said the rule aimed to address the risks posed by automated, high-speed trading and prevent unfiltered access to exchanges.
The reason finance continues to revisit this lesson is simple: when the brakes fail, the damage is often worse than what the institutions can recover from.
Back in 1987, when Black Monday wiped 22% off the Dow in a single session, the Brady Commission recommended a pause button in âcircuit breakersâ to mandate a 15-minute halt triggered by percentage drops. Without the brakes, Black Monday wiped out $1.7 trillion across the globe in a single day. Its inflation-adjusted value today would be over $4.7 trillion, more than Germanyâs current GDP, the worldâs third-largest economy.
These brakes taught the finance world that sometimes the only way to maintain speed is to briefly stop the machine. In some other cases, a short pause does the job.
In August 2012, the Knight Capital Group suffered from a software problem that caused its computers to buy and sell millions of shares in just 45 minutes. The glitch led to a $440 million loss in less than an hour, driving the market maker close to bankruptcy. Knight Capital had optimised its systems for speed, which is crucial in the business of markets. But an unchecked system with no brakes can bring the fastest systems to a grinding halt. Lesson? The faster the system, the more valuable a brake becomes.
Retail finance has had its own problems.
For years, brokerages worked to make risky products feel easy to use for driving retail user growth. They persisted until it cost them trust. In its 2021 disciplinary action against Robinhood, FINRA said that the firm failed to exercise due diligence before approving customers for options trading and relied heavily on automated âapproval botsâ with limited oversight. The not-for-profit self-regulatory organisation that oversees investor protection claimed that Robinhoodâs systems approved customers based on inconsistent or illogical information. FINRA said that the firmâs systems allowed applicants whose risk profiles should have raised obvious questions.
Robinhoodâs systems were optimised to process applications quickly and avoid delays for prospective customers. What was missing was a meaningful pause between curiosity and safety. There was speed, but no brakes.
Curious Case of Crypto
The recent Aave-CoW fiasco in the crypto landscape takes the need for brakes in finance to a different level altogether.
On March 12, a user executed a $50 million swap through the CoW Swap, a decentralised exchange (DEX) aggregator that is supposed to protect users from bots front-running their transactions. The swap was integrated into the front end of Aave, a DeFi protocol. Due to poor liquidity, the user got $36,930 worth of tokens in return for $50 million.
While Aave explained in its post-mortem that the user had ignored an explicit high-price-impact warning, its founder and CEO, Stani Kulechov, posted on X that the Aave team âwill be investigating ways to improve these safeguards going forward.â
When you strip away the jargon, whatâs clear is that a fast interface allowed a catastrophic trade to proceed too far before the system reacted. Though some may argue about the userâs discretion and ignorance of the warning. But treating this as a one-off issue would be convenient and counterintuitive for the growth of newer financial infrastructure, such as blockchain.
If crypto wants to avoid repeating the same mistakes, the solution is to build smarter execution layers. Some DeFi trading protocols are already moving in that direction.
Definitive.Fi, for instance, argues that large on-chain trades should not simply be routed to whichever path is technically available. They should be simulated before submission, checked against realistic market conditions, split into smaller tranches when needed, and routed across a wider pool of liquidity. So, a good trading system should not just check whether it can honour a trade, but also check the optimal route it should take to fulfil the order.
Trust and additional safeguards are not nice-to-have features for any emerging infrastructure. More so, in finance. A product that makes trading, lending or moving money feel effortless can help grow faster, but comes back to bite at the first instance of failure. We saw this pattern with all the above traditional finance cases. Systems tried to minimise the visible friction points - even if they were necessary brakes, hid the complexity and hoped the smoothness would earn more consumer confidence.
But confidence in finance is seldom won that way. It is won when institutions identify moments that deserve interruption and act by introducing annoying but necessary brakes. The same way as Pay.UKâs Confirmation of Payee worked. It is definitely not a pleasant experience to be repeatedly asked to confirm a bank account name, but it introduces a brake right at the moment a mistake could become expensive and irreversible.
Aaveâs Stani understands this. Thatâs precisely why he accepts that customers do not always know how an order should be routed, who is being paid along the way, or whether a better venue exists. Such understanding is more crucial in a nascent industry such as crypto and blockchain, where few users understand the technical flow of a transaction and the consequences of their every click. In such cases, acknowledging a pain point and taking a step to address it goes a long way in reinforcing consumer trust.
What makes it tricky is that there is a thin line separating brakes from random inconveniences and friction. Good brakes donât compromise speed altogether. They are minor resistances timed with precision. In the case of Aave-CoWâs swap, one can imagine a good brake as an economic sanity check. One that enables a system to scan more venues before routing, keep order intent away from predatory actors, simulate outcomes before execution, and break up large trades so that users are not punished for size. They are part of what makes financial infrastructure trustworthy.
The difference matters because finance still has bad friction points that need to be resolved. There is endless paperwork that serves no one, inefficient compliance procedures that slow down the whole process, hidden fees disguised as part of the process and needlessly clunky onboarding that turns away new users.
None of these should be defended. The case for brakes is not a justification for uglier products or more pop-ups. It is about designing pauses when users are about to make irreversible decisions with incomplete information. Especially when customers are operating with large orders in thin markets, handling high-risk products, exploring new payment destinations, and taking one-click actions where the downside is immediate and speed is not paramount.
Thereâs also a business lesson here.
The financial industry often talks about building safeguards once a product-market fit is found. That gets the order wrong. In finance, safeguards are integral to product-market fit. When implemented properly, safeguards wonât even feel like brakes. Pay.UKâs case reinforces that Confirmation of Payee is not a nice-to-have anti-fraud feature. Itâs become a âutility service that customers expect to seeâ when they transact using the system.
The emerging financial infrastructure, such as blockchain, aims to earn trust and withstand mistakes, scandals, and market stress, as traditional finance has. But the journey is not easy. It will have to become more proactive in identifying how to win trust before it wins users. Because if the former is earned, the latter will follow. But the reverse may not be true.
If blockchains can apply strategic brakes, they could achieve speeds that surpass any other financial infrastructure.
Thatâs it for today. I will be back with another deep dive.
Until then, stay curious!
Prathik
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