Over $10 Billion Has Been Lost To DeFi Exploits In 2021

Decentralized finance (DeFi) platforms have been the target of criminal attacks this year. Investors in the blockchain-based form of finance have lost billions of dollars to criminals that target the platforms.

The total amount of money deposited at DeFi services has spiked from just $500 million in 2019 to $247 billion this year.

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According to a report from London-based firm Elliptic, the overall losses caused by DeFi exploits have totaled $12 billion in the past year. Out of that amount, fraud and theft accounted for $10.5 billion, seven times the amount last year.

DeFi, which has drawn in billions of dollars in investor funds, has also been a frequent target by hackers. They exploit poorly protected protocols, mostly using flash loans.

Related Reading | Poly Network Confirms Hacker Has Returned Most Of The Stolen Crypto

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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 roughly $600 million worth of various cryptocurrencies. They however returned most of the stolen funds.

DeFi – The Wild West Of Cryptocurrencies

Elliptic is a firm that tracks movements of funds on the digital ledgers that underpin cryptocurrencies. It recently reported that DeFi exploits amounted to $12 billion this year.

DeFi is often called the “Wild West” of cryptocurrencies because it is still the most unregulated area of crypto. DeFi platforms allow users to lend, borrow and save – usually in cryptocurrencies – without any involvement from middlemen like banks.

“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed,” said Tom Robinson, chief scientist at Elliptic. “This is attracting large amounts of capital to projects that are not always robust or well-tested. Criminal actors have seen the opportunity to exploit this.”

According to the report, the underlying technology of DeFi is built on open infrastructure. However, that technology is “relatively immature and untested.” There are bugs in code as well as design flaws that enable criminals to target the platforms.

Total DeFi market cap on TradingView.com

DeFi market cap at $165.47B | Source: Crypto Total DeFi Market Cap on TradingView.com

“Decentralized apps are designed to be trustless in that they eliminate any third-party control of users’ funds,” said Robinson. “But you must still trust that the creators of the protocol have not made a coding or design mistake that could lead to a loss of funds.”

Criminals can also easily launder proceeds of crime while leaving few traces. “The irreversible nature of crypto transactions make it very challenging to recover these funds,” says the report.

Call For Regulation

With the alarming number of exploits the space is facing, there are calls for DeFi regulation. Regulators are now also turning attention to the sector. However, the actions of regulators in the coming months will play a significant role in determining how well they thrive in the future.

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Crime across DeFi Platforms Surged to $10.5B in 2021

The decentralised finance (DeFi) sector continues to take the world by storm, having scaled the heights to become a billion-dollar industry worth $86 billion, according to market insight provider DeFi Pulse. 

Nevertheless, blockchain analytic firm Elliptic noted that crime has grown at an alarming rate in this industry by hitting $10.5 billion so far this year.

Per the announcement:

“Bugs in code and design flaws allow criminals to target DeFi sites. Deep pools of liquidity permit criminals to launder proceeds of crime while leaving few traces. Scams are also common.”

Crime across DeFi platforms has been rampant in 2021 because users have lost more than $12 billion since 2020. 

According to Elliptic’s co-founder Tom Robinson:

“Decentralized apps are designed to be trustless in that they eliminate any third-party control of users’ funds. But you must still trust that the creators of the protocol have not made a coding or design mistake that could lead to a loss of funds.”

Many DeFi platforms emphasise that they have been beefing up security by maintaining passwords and keys and hiring external firms to check vulnerabilities.

DeFi enables users to save, borrow, and lend mainly in cryptocurrencies without an intermediary because it is founded on blockchain-based smart contracts that fulfil financial functions on the foundation of the underlying code.

According to a study by blockchain analytic firm Chainalysis, the United States had the highest DeFi adoption rate, followed by Vietnam, Thailand, China, and the United Kingdom.

Some experts expect this industry to enjoy more growth in the coming years. For instance, Matthew Roszak, a veteran crypto investor, stated that the DeFi sector would become an $800 billion industry thanks to increasing mainstream crypto adoption, the global chase for yield, and increased inflation.

Meanwhile, Victims of the BitConnect Ponzi Scheme, which siphoned more than $2 billion, are set to benefit from the liquidation of crypto assets worth $57 million. 

Image source: Shutterstock


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DeFi Protocols Lost Over $284 Million Since 2019, Says Messari Report

Cryptocurrency research firm Messari has revealed that the total amount of funds stolen from decentralized finance (DeFi) protocols since 2019 is over $284 million.

DeFi Hacks and Thefts Since 2019 Total $284 Million

Tweeting on Wednesday (April 28, 2021), Mesaari noted that DeFi projects have lost about $284.9 million to hacks, bugs, and smart contract code flaws since 2019. According to the crypto research company, the reported amount is 0.3 percent of the global total value locked (TVL). 

The DeFi space started gaining momentum back in 2019, and continued to make headlines in 2020. Meanwhile scammers decided to capitalization on the hype, defrauding unsuspecting victims in the form of rug pulls.

Also, rogue actors took advantage of the different flaws found in various DeFi protocols. According to Messari’s report, most of the exploits from August 2019 to March 2021 came in the form of flash loan attacks. The second most common type of exploits was smart contract code flaws. 

As previously reported by BTCManager backnin November 2020, while cryptocurrency-related crime declined in 2020, DeFi hacks and thefts saw an uptick. Most of the fraud that happened in the DeFi ecosystem in the second half of 2020 came from rug pulls. 

DeFi flash loan protocols like bZx suffered multiple exploits by hackers. In February 2020, the lending platform suffered two attacks, with almost $1 million stolen from the project. A third incident occurred in September of the same year, which saw hackers take advantage of a smart contract code flaw to steal $8.1 million. 

Another DeFi protocol Yearn Finance, suffered a flash loan attack in February 2021, with hackers stealing $11 million. The team, however, was able to quickly mitigate the attack by saving $24 million out of $35 million worth of DAI. The incident was the project’s second attack in February. 

Still in February, Alpha Homora suffered a complicated exploit, with the use of Cream Finace’s Iron bank service, enabling the hacker to steal $37.5 million. The incident is one of the largest in DeFi’s history. 

While Messari’s report focuses on Ethereum-based DeFi protocols, projects on the Binance Smart Chain (BSC) network have also fell victims to attacks. According to a recent report by BTCManager, Uranium Finance was one of such projects to be hacked, with attackers stealing $50 million.

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