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- DeFi users have cumulatively lost more than $12 billion to hacks and exploitations to date, $10.5 billion of which came in 2021.
- The majority of decentralized protocols practice poor cybersecurity measures, according to Elliptic.
- More than 70% of the lost funds come from the projects built on the Ethereum blockchain.
DeFi has witnessed exponential growth over the past two years. The total capital locked in DeFi, the sum of all assets deposited in DeFi protocols and a metric to gauge the overall DeFi market growth, has spiked to more than $247 billion, up by a whopping 1,700% compared to last year.
However, along with this staggering growth, DeFi has also attracted hordes of ominous actors. Hacks, rug pulls, thefts, and fraud schemes have become part of the emerging industry, accounting for the loss of billions of dollars worth of crypto assets.
That is largely due to the relative immaturity of DeFi, which describes why experts believe the industry is still in the experimental phase. Using breaches and faults in smart contracts, hackers have been able to steal users’ funds.
DeFi Hacks Soar
According to a recent report by Elliptic, DeFi users have cumulatively lost more than $12 billion to hacks and exploitations to date. Notably, the bulk majority of those losses, $10.5 billion or more than 87%, happened in 2021 alone. In comparison, that figure was less than $1 billion in June 2020.
The recent surge in popularity for DeFi protocols, as well as the rise of promising networks such as Solana, Avalanche, and Binance Smart Chain, prompted investors to pour billions in DeFi projects. However, as the projects were striving to keep up with the swiftly moving sector, bad actors were capitalizing on this opportunity.
Summing up the issues associated with DeFi projects, Elliptic said the majority of decentralized protocols practice poor cybersecurity measures. The fact that crypto transactions are irreversible makes the industry even more attractive for hackers, Elliptic said, adding:
Many are startups with relatively immature cybersecurity, and the irreversible nature of crypto transactions make it very challenging to recover these funds. This has made them tempting targets for attackers ranging from lone hackers to nation states.
Meanwhile, more than 70% of the lost funds come from the projects built on the Ethereum blockchain, where the bulk majority of Dapps reside. Binance Smart Chain, a rival to the Ethereum blockchain that has found popularity with its low fees and fast transaction speed, accounted for $2.5 billion in losses since 2020.
Just recently, the decentralized lending protocol Cream Finance fall victim to exploitation that drained more than $130 million in funds from the project’s coffers. Only two months before that, the project was the target of another hack, which resulted in the loss of over $25 million worth of crypto assets.