in 2021 DeFi Users Lost $10.5 Billion to Theft and Fraud!
Mostly on Ethereum DeFi users have lost $12 billion to hacks and scams over the past two years.
Scams, hacks, thefts, rug pulls, and fraud schemes. What do these decentralized exploits all have in common? Someone somewhere loses money.
And not just a little. How about $10.5 billion in 2021, up from $1.5 billion last year, according to a new report from risk management firm Elliptic.
The DeFi has over $250 billion in digital assets flowing through its veins, according to data collected by DeFi Llama.
As recently as June 2020, that figure was less than $1 billion. Increased use of protocols, as well as rising prices for the underlying coins and governance tokens that power them, have created a virtuous cycle for those deeply invested in the space
But increased popularity—not to mention expansion from Ethereum to networks such as Solana and Binance Smart Chain—also means DeFi has more funds to steal, even as many projects struggle to keep up with the swiftly moving sector.
Elliptic defines the challenges facing DeFi projects in its report: "Many are startups with relatively immature cybersecurity, and the irreversible nature of crypto transactions make it very difficult to recover these funds. This has made them tempting targets for attackers ranging from lone hackers to nation states.”
According to Elliptic, in the past two years, $2 billion has been stolen directly from decentralized applications. It attributes an additional $10 billion in losses to declining token value as a result of fraud or theft; though it's a squishier number to pin down, these protocol losses ascribe a value to decreased consumer confidence in the product.
The vast majority of losses from the last two years, $8.6 billion, have come from Ethereum, the home of decentralized finance. Ethereum originated lending protocols like MakerDAO, decentralized exchanges such as Uniswap, and derivatives products like Synthetix. Binance Smart Chain protocols have been responsible for $2.5 billion in losses since 2020.
As the space matures, attacks may be confined to fly-by-night protocols and risky platforms. For now, though, Elliptic wants users to keep their guards up. DeFi, it says, has become a "tempting honeypot for hackers." Stay Safe Out There!