Decentralized Finance (DeFi) platforms have been the target of criminal attacks this year. Investors in the form of blockchain-based financing have lost billions of dollars to criminals who target platforms.
The total amount of money deposited on DeFi services has grown from just $ 500 million in 2019 to $ 247 billion this year.
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According to a report from London-based Elliptic, overall losses caused by DeFi’s exploits totaled $ 12 billion in the past year. Of that amount, fraud and theft accounted for $ 10.5 billion, seven times the amount last year.
DeFi, which has attracted billions of dollars in investor funds, has also been a frequent target of hackers. They exploit poorly protected protocols, most often using flash loans.
Related reading | Poly Network Confirms Hacker Returned Most Stolen Crypto
One of the popular attacks this year was the Poly Network hack. Hackers exploited a vulnerability in the Multi-Chain Interoperability Protocol. And they took off with around $ 600 million worth of various cryptocurrencies. However, they returned most of the stolen funds.
DeFi – The Wild West of cryptocurrencies
Elliptic is a company that tracks the movement of funds on the digital ledgers that underpin cryptocurrencies. He recently reported that DeFi exploits were worth $ 12 billion this year.
DeFi is often referred to as the ‘Wild West’ of cryptocurrencies because it is still the least regulated area of crypto. DeFi platforms allow users to lend, borrow and save – usually in cryptocurrencies – without any involvement of intermediaries like banks.
“The DeFi ecosystem is an incredibly exciting and rapidly evolving space, with financial services innovation happening at the speed of light,” said Tom Robinson, Chief Scientist at Elliptic. “It attracts large amounts of capital to projects that are not always robust or well tested. Criminal actors saw the opportunity to exploit this.
According to the report, DeFi’s underlying technology relies on open infrastructure. However, this technology is “relatively immature and untested”. There are bugs in the code as well as design flaws that allow criminals to target platforms.
DeFi market cap at $165.47B | Source: Crypto Total DeFi Market Cap on TradingView.com
“Decentralized applications are designed to be trustless in that they eliminate third-party control over user funds,” said Robinson. “But you still have to believe that the creators of the protocol didn’t make any coding or design errors that could result in a loss of funds.”
Criminals can also easily launder the proceeds of crime while leaving few traces. “The irreversible nature of crypto transactions makes it very difficult to recover these funds,” the report says.
Call for payment
With the alarming number of exploits facing the space, there are calls for DeFi regulation. Regulators are now also looking to the sector. However, the actions of regulators over the next few months will play an important role in determining how well they prosper in the future.
Featured image by Aergo, Chart from TradingView.com
