The boom in decentralized finance has brought with it the problem of major hacks, thefts, and fraud
2021 saw a rapid growth of virtual assets including the Decentralized Finance (Defi) space which boomed. At the same time though, it also proved to be of a year of turmoil as DeFi-related hacks grew manifold. Let’s first take a snapshot at how the Cryptoverse has grown in the past few years — the total market cap went from approximately $135 billion on January 1, 2019, to just under $2.1 trillion on March 31, 2022, an increase of 1,456%. It kept increasing till it peaked in November 2021 at almost $3 trillion, at which time Bitcoin hit its all-time high of $68,790.
Ever since then it has been nothing but pain for the crypto bulls as the collective market has receded over 70% from these highs. Talking specifically about the DeFi segment, it quickly surpassed $100 billion in the first half of 2021. Two massive hacks in the following few months made a huge dent not only in DeFi’s market cap but also in its credibility. Nevertheless, we should not discount the fact the inclusivity DeFi has brought for many users kept out of the legacy financial system.
A recent report by CipherTrace presents a detailed perspective on how hacks, thefts, and fraud have shaped up in DeFi, the upcoming regulations, and the enforcement actions being taken by law enforcement authorities. Coming back to the hacks, two of the biggest ones took place within the last 12 months (chart above) — the Poly network hack of $610M occurred in August 2021, while the Ronin hack of $625M occurred in March 2022. The increase and the frequency of such cyberattacks validate the increased capabilities and willingness of the nefarious players.
The chart above illustrates the top 10 DeFi hacks (including losses from smart contract errors) of 2021 and 2022 (through Q1) account for $2.4 billion. While Ethereum continues to be the most widely used blockchain for DeFi, Graphic 2 illustrates a declining trend in its dominance in use. While illicit cryptocurrency activity in 2021 is a much larger dollar value compared to prior years, it continues to decline as a percentage of overall activity, according to the report.
CipherTrace further estimates the total percent for 2021 illicit activity was between 0.10 and 0.15% of overall cryptocurrency activity compared to between 0.62 and 0.65% of overall cryptocurrency activity in 2020. The report goes on further to highlight the changing characteristics of illicit activity and elaborates further on the key trends. In the meantime, Law enforcement, lawmakers, legislatures & regulatory agencies have stepped up efforts to increase the oversight of this fast-changing industry.
Originally Published on Medium
