How do we protect the booming ‘decentralized finance’ economy?In a recent article by Edith Muthoni, writing for TradingPlatform, an online brokerage and advisory for consumers, she examines the emergence of Decentralized Finance (DEFI), including the booming crypto-market, noting that Defi investments lost $1 trillion to crypto theft in the last 6 months. Read her full report here.
Editor’s note: No character in fiction (or real life for that matter) has captured our collective imagination more that the ‘bank robber’. From those daring to drill through the walls of dusty western bank buildings to the more sophisticated confidence men who bamboozled the wealth of the unsuspecting and now to today’s tech-wizards who are already ‘drilling’ their way into the embedded code of new digital currencies, untested and misunderstood by so many. New data reveals a growing threat to digital security, which presents a challenge to the efficacy of the booming crypto-economy.
Decentralized finance (DeFi) projects have been bleeding heavily in the last six months. A data presentation by tradingplatforms.com estimates that Defi projects lost about $1T in that period.
At the time of writing, market data shows that Defi projects had lost $2,401,491,994 in YTD estimates. In contrast, they had lost $1, 452, 128, 372 in September 2021, bringing the actual value of crypto lost in the last 6 months to $949, 363, 622.
“DeFi is a fast paced and highly innovative financial services ecosystem,” said tradingplatforms.com’s Edith Reads. “Investors are pouring funds into projects that aren’t necessarily stable or properly audited. Crooks have found an opportunity to capitalize in those situations.”
Major Crypto Exploits In That Period
The presentation also captured the major crypto heists in that period. The most prominent and recent of these is the $320M Wormhole hack. The project reported an exploit that siphoned 120,000 wrapped Ether tokens from the platform. Another is the Qubit Finance hack of January 27, 2022, where hackers stole crypto with $80M.
Additionally, a BitMart exploit of December 4th, 2021, led to a loss of upto $196M. Again, Vulcan Forged and BadgerDao suffered losses of $140M and $120M.
Crypto Theft Is Multi-Faceted
Crypto theft takes many forms. But the most common are smart contract hacks, phishing scams, and flash loan attacks.
Smart contract hacks involve a hacker finding a bug in the code of a smart contract or dApp and exploiting it to get to the funds held by the DeFi project.
Phishing involves impersonating an authentic entity to trick people into giving them information on their private keys and wallet(s). In flash loan attacks, thieves exploit loopholes in smart contract code that allows them to borrow more funds than they put up as collateral.
Thieves can also use flash loan attacks to steal funds from vulnerable contracts. They exploit loopholes in smart contract code that allows them to borrow more funds than they put up as collateral.
Attackers typically target exchanges with smaller user bases and less secure infrastructure. These are the least likely to notice the theft until it’s too late.