Hassan Maishera
DeFi Protocols Have Lost Billions Of Dollars
A new report by London-based firm Elliptic revealed that billions of dollars had been stolen from decentralized finance (DeFi) protocols, a flourishing alternative financial system that replaces traditional intermediaries with software running on blockchains.
The report revealed that the growth in the use of DeFi over the past two years has been staggering, the total capital locked in DeFi services has grown by over 1,700% to $247 billion in the past year alone. However, the rapid growth also presents a lot of risks to investors.
The report said, “As of November 2021, just over $12 billion in losses have been suffered by DeFi users and investors, due to the malicious exploitation of flaws in decentralized applications (DApps) such as decentralized exchanges (DEXs), lending protocols and asset management offerings. These losses include direct loss of funds stolen from DApps, as well as losses suffered by holders of tokens associated with these protocols.”
Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from 2021. In addition to that, $1 billion was lost as a result of exit scams (where the DeFi creator intentionally leaves a ‘backdoor’ in the code that allows them to steal investors’ funds) and the theft of “admin keys.”
Tom Robinson, the chief scientist at Elliptic, added that “the DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed. 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.”
There have been several rugpulls, thefts and scams on some of the leading DeFi blockchains, including Ethereum, Binance Smart Chain and Polygon. According to Elliptic, the prevalence of DeFi theft and crime can be attributed to the untested and immature nature of the available technology.
The report pointed out that flaws in the design and development of decentralized apps are the major causes of the thefts as hackers exploit those vulnerabilities. The DeFi space is still in its early days, and the market is expected to grow bigger over the coming years. As it grows bigger, there would be better security for the DeFi protocols launching on the various blockchains.
