Hacks of DeFi protocols caused the most losses to the crypto market

The decentralized finance industry has seen strong growth over the past few weeks. To date, the amount of funds locked in the DeFi protocols of the Eth network has grown to almost $ 81 billion .

But alas, HYIP cannot do without negativity. According to a new report by analyst firm CipherTrace, cybercriminal activity in this area is also impressive. Since the beginning of the year, hackers have stolen more than $ 474 million from decentralized protocols, and this amount increased even last night.

The projects of the decentralized finance industry are distinguished by the absence of centralized bodies, as can be understood from their name. Accordingly, there are no special divisions of employees who approve or block transactions – users of such platforms are equal.

This means that the operation of such protocols is completely dependent on the code generated by the developers. And if there are errors or weaknesses in the code, hackers will definitely take advantage of this and will most likely keep the stolen money for themselves.

Examples of this happen on a regular basis. In particular, yesterday evening it became known about a large-scale attack of the Poly Network cross-chain protocol, whose users lost at least the equivalent of $ 611 million.

The peculiarity of the platform, among other things, was the work in several blockchains. As a result, hackers attacked the project on the Binance Smart Chain, Ethereum and Polygon networks. This attack is now considered the largest in the history of decentralized finance to date.

The main problems of decentralized finance

CipherTrace experts noted that the fight against cybercrime in the cryptoindustry is still bearing fruit. In 2019, the volume of losses from the activities of cybercriminals reached $ 4.5 billion. A year later, this figure dropped to $ 1.9 billion. Finally, since the beginning of 2021, the total losses amounted to $ 681 million, but a significant part of this figure is occupied by hacks of the DeFi protocols.

DeFi cryptocurrency chart

Growth in the volume of funds blocked in DeFi-protocols

As we have already noted, the term DeFi refers to blockchain protocols created for the decentralized provision of loans, interest earning, and the exchange of various assets. In fact, these are about the same services that can be obtained from a bank, but only on the basis of decentralization and sometimes with huge profits.

DeFi protocol hacks have caused $ 361 million in damage since the beginning of this year . The so-called project collapses – when their creators themselves defrauded investors and disappeared with their money – caused $ 113 million in damage.

According to Decrypt, the growth in dollar value for hackers also comes from the overall growth of the crypto market. So many DeFi coins have gained hundreds of percent since January, while Ethereum, the main decentralized protocol platform, has grown more than 200 percent since the start of the year.

And yet, in relation to the activity of cybercriminals in other areas of the crypto market, DeFi occupies a dominant position. This is clearly illustrated in the diagram below. Note how decentralized finance accounts for 76 percent of all cryptoinvestor losses this year from fraudulent activities.

DeFi cryptocurrency chart

Increase in DeFi’s share of total losses from hackers

In addition, hackers often find vulnerabilities in the code of decentralized protocols. Since DeFi quickly became a hot topic in the past year, many of those who had programming skills without much experience took up the development of a large number of «hype» projects. Because of this , many «raw» services and platforms appeared on the market, which became the «prey» of hackers.

We believe that although these statistics can hardly be called positive, they do not put an end to the prospects of the decentralized finance industry. The abundance of hacks is a consequence of the niche’s novelty, as well as its experimentation in general. In addition, assets within the industry are decentralized, that is, they cannot be withdrawn as easily as, for example, freezing a bank account. Therefore, the facts of hacks should be treated as something completely predictable.

In any case, we recommend that you do not use most of your own funds in various decentralized platforms – especially new ones. Experience shows that practically no one is immune from hacking, so in this case it is better to be careful and leave a certain margin of funds in case of a bad scenario.

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