The Biggest Threat To Decentralized Financial Infrastructure: DeFi Hackers Steal $10.5 Billion From Platforms Worldwide

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DeFi Fraud Steal 2021

Hackers and scammers pilfering $10.5 billion from DeFi in 2021 New research indicates that hackers and scammers stole $10.5 billion from DeFi platforms worldwide in 2021. This represents a significant increase of $2.5 billion from the previous year, and is primarily due to higher asset prices, according to Elliptic, a risk management firm that specializes in digital assets.

Decentralized finance exploits involve hacking, thefts, rug pulls, and fraud schemes. What do they all have in common? Someone on the other end loses money.

And not just a little. According to a new report from risk management firm Elliptic, expected revenue will rise from $1.5 billion last year to $10.5 billion in 2021.

Through automated smart contracts incorporated into protocols, decentralized finance, or DeFi, allows people to bypass banks and traditional financial intermediaries to lend, borrow, save, and trade with peers without the involvement of banks.

According to DeFi Llama, over $250 billion worth of digital assets flow through the sector today, while the figure was less than $1 billion as recently as June 2020. A virtuous cycle for those deeply invested in the space has developed due to the increased use of protocols and the rising prices of the underlying coins and tokens that power them.

In addition to increasing popularity-not to mention DeFi’s expansion into networks such as Solana and Binance Smart Chain-DeFi also has more resources to steal, even as others struggle to keep up with the quickly evolving space.

In its report, Elliptic summarizes the problem with DeFi projects and explains that since these startups have relatively immature cybersecurity and cryptocurrency transactions are irreversible, recovering these funds is very difficult. As such, they make appealing targets for attackers from lone hackers to nation states.

Cybersecurity errors aren’t always unintentional, but can instead be the result of “backdoors introduced by their creators in order to steal users’ money.

Elliptic reports that $2 billion has been stolen from decentralized apps over the past two years. The report attributes another $10 billion in losses to declining token values as a result of fraud and theft; although this is a hard number to calculate, these protocol losses result from consumer skepticism.

In the last two years, Ethereum, the home of decentralized finance, has accounted for the majority of losses, $8.6 billion. MakerDAO, a decentralized lending protocol, uses Ethereum. decentralized exchanges such as Uniswap, and derivatives products like Synthetix. Binance Smart Chain protocols have been responsible for $2.5 billion in losses since 2020.

In Elliptic’s view, users should be most worried about lending protocols, which allow people to borrow cryptocurrency from pools of their peers. Having accounted for over one-third of losses, these protocols are just as vulnerable to code exploits as they are to economic exploits, such as flash loans in which users borrow large amounts, manipulate market prices to create arbitrage opportunities, then pay the money back.

Elliptic believes that as the industry matures, attacks will be confined to fly-by-night attacks and risky platforms. For now, though, Elliptic says DeFi has become a “tempting honeypot for hackers.”

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Chris Munch

Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.