• DeFi hacks: Herein lies the crux of the problem…

  • Poly Network recently experienced what is being called the largest DeFi hack in history, resulting in total losses of over $600 million. Despite the community’s disappointment and disbelief, this is far from the first DeFi network to suffer such devastating losses as a result of hacks and attacks.

    Despite a drop in overall cryptocurrency-related crimes in recent years, losses from theft, hacking, and fraud in DeFi reached an all-time high in the first seven months of 2021, according to CipherTrace’s “Cryptocurrency Crime and Anti-Money Laundering Report.”

    This is most likely due to the fact that the DeFi market suffered 76 percent of the total volume of major hacks until the end of July, totaling $361 million. This is nearly three times what was recorded in all of 2020.

    Furthermore, the report stated that DeFi was responsible for 54 percent of all major crypto fraud, up from about 3 percent last year.

    Year-to-date total crime in 2021 was more than $471 million. According to the report, these can be divided into two categories: hacks of a DeFi protocol carried out by outside agents and rugpulls carried out by insiders. Despite the fact that the majority of DeFi crimes reported in 2021 fell into the first category, rugpullers managed to earn an extra $113 million year to date.

    Another interesting aspect of the report was that the majority of DeFi protocol attacks in the previous year used flash loans, which do not require any collateral or KYC, making it very difficult to track down the perpetrators. The report went on to say,

    “However, the crux of the problem is not the platforms that make the flash loans, but the unaudited smart contracts to which the loans are sent and later exploited.”

    But it wasn’t all bad news, as the report discovered that crypto crime, in general, has been steadily declining over the last few years. It is expected to fall from $4.5 billion in 2019 to around $1.9 billion in 2020. In the first seven months of 2021, it had dropped even further to $681 million. However, the recent Poly Network attack may have had a significant impact on these figures, adding over $600 million to the equation.

    Between January and July 2021, there were 30 confirmed DeFi hacks, with a number of them affecting well-known protocols such as ThorChain and ChainSwap.

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