DeFi sector suffers record losses due to cybercriminals

DeFi sector losses incurred in 2021 as a result of hacking and theft were at a record high, according to a CipherTrace study.

It’s not just DeFi sector that’s thriving, but criminals too

Despite the decentralized finance (DeFi) industry’s seeming prosperity, it’s experiencing serious problems this year because of cybercriminals. According to a recent study published by analyst firm CipherTrace, the DeFi sector is facing record losses in 2021 due to the actions of rogue hackers and thieves.

Over the past seven months of this year, from January to July, the total amount of losses in this segment of the crypto-industry has already amounted to about $474 million.

Notably, cybercrime rates in the cryptocurrency market as a whole have fallen. According to CipherTrace, crypto market losses in 2019 and 2020 were $4.5 billion and $1.9 billion. Meanwhile, this year, by the end of July, the same figure reached only $681 million.

“It’s no surprise that crime in the DeFi segment is growing, following the expansion of the ecosystem itself. It’s now only the eighth month of 2021, and meanwhile the rate of hacking, theft and fraud in the DeFi market has already surpassed that for all of 2020. That could mean more attention from regulators around the world on the DeFi sector.

CipherTrace experts also note that all crimes in the DeFi segment can be divided into two categories – hacks of protocols by outside agents or criminal acts by insiders. According to CipherTrace, in 2021 the majority of attacks on the sector were carried out externally, while insiders accounted for only 24% of the crimes.

In addition, CipherTrace points out that the most common trend among criminals is the use of flash credits when attacking DeFi. According to experts, this is due to the fact that this tool requires neither compliance with KYC procedures, nor any collateral. Consequently, it makes it much more difficult to find the attackers. This problem is rooted in unaudited smart contracts, CipherTrace adds.

What else didn’t make it into the report

Interestingly, on the day this study was published, the DeFi marketplace was hit by another hacker attack, which members of the cryptocommunity have already called the largest in the decentralized finance segment to date.

On August 10, hackers broke into Poly Network’s protocol and took out more than $600 million. If these estimates are finally confirmed, it would mean that the amount of losses incurred by Poly Network exceeded the entire DeFi sector losses for the first seven months of this year.

The Poly Network team asked industry players to block the stolen funds and blacklist the hackers’ addresses. Representatives of exchanges have already responded to the requests. Thus, the Tether project reported about $33 million in stolen funds blocked on its platform.