Criminal Activity Thrives On DeFi As $10.5bn Lost To Fraud And Theft

Ever since it became popular, the crypto industry has been seeing major amounts of money go through it. Not quite at the level of traditional finance, of course, but still pretty large. And, since it remains unregulated, that money is sometimes not properly secured, and sometimes it is just extremely easy to conduct scams that can trick dozens, hundreds, or even thousands of people.

However, since trends like DeFi are still very new, there is another reason why money tends to be lost to online criminals, and that is technological flaws and exploits.

According to recent information, investors have lost over $10.5 billion dollars to criminals who focus on the decentralized finance sector and its various platforms and protocols. A report published by Elliptic, a company based in London, says that fraud and theft are the most common methods of stealing money from the DeFi sector.

DeFi is Exciting and Fast-moving, but not Always Reliable

DeFi blew up in 2020, although it has been around for years before that. Despite its sudden popularity, it has been called the Wild West of the crypto sector, and things did not change much in 2021, either. DeFi services often promise users huge returns, but they lack involvement from third parties such as banks and other centralized financial institutions. They also offer high-interest rate savings and lending products, which are now quite common in the sector.

But, as mentioned, DeFi is unregulated, like the rest of the crypto industry, and as such, it falls victim to scams, fraud, and hacks.

Fraud and theft are the biggest issues still, proving once again that the most efficient way to steal money is not to bypass security systems but to trick people into giving it away. From the $12 billion that criminals stole from DeFi in 2021, around $10.5 billion was lost to fraud and theft. This represents a sevenfold increase from 2020 when DeFi first went big.

Elliptic’s chief scientist, Tom Robinson, stated that the DeFi ecosystem is incredibly exciting and fast-moving, with the innovation arriving at the sector at light speed. Innovation attracts capital, which is a good thing usually, but not when the projects are not robust or well-tested. This provides criminal actors with the opportunity to exploit them.

Over the last two years, during which DeFi was blowing up, the total amount that was deposited to DeFi services skyrocketed from $500 million to $247 billion. The surge came alongside the growth of the crypto prices, which also skyrocketed this year. Bitcoin reached nearly $70,000 per coin, while Ethereum hit its own ATH just below $5,000. Both have corrected heavily since then, of course, and while countless projects have already expanded into the DeFi sector, Ethereum remains its birthplace and is currently the network with the largest count of DeFi protocols.

Scams and Exploits Dominate the Sector

Unfortunately, with the growth of the size of the market, there was also a major growth of illicit activity. Earlier this year, $600 million was lost from the platform called the Poly Network. At the time, this was the biggest crypto theft in history. Interestingly, however, most of the funds were then simply returned by the hackers, who claimed that they simply wanted to exploit the network in order to display its flaws.

Another thing to note is that there were plenty of rug pulls, where scammers managed to get investors to buy their tokens, before running off with the funds.

The state of DeFi has led regulators around the world to develop growing concerns, especially due to the speed at which it has been developing. The SEC, for example, is requesting information from Uniswap Labs, seeking to understand how investors use its platform, how the platform is being marketed, and alike. Uniswap Labs is doing everything in its power to comply with the law and assist the regulators, according to its spokesperson.

However, another problem is that DeFi projects are marketing themselves as decentralized, which is not always the case.

All in all, the DeFi sector is big, profitable, rapidly growing, and still very much troubled by all kinds of problems. From thefts and scams to flawed technology, DeFi has a lot of work to do in order to perfect itself and grow into a strong, massive, and great industry that it can be.

Leave a Reply

Your email address will not be published.

Related Articles
Read More

Exciting New Crypto Projects Soon To Launch

Such benefits create room for more innovations and global acceptance of digital assets. At the time of writing, the crypto ecosystem supportsmore than 12,000 coins. The number is set to increase as the demand for advanced financial solutions rises. In the following article, we explore...
Read More

Remembrance Day 2021

If there is anything I took out of sociology at Navarro Community College in Waxahachie, it is that all things exist for a purpose; when they no longer serve that purpose, they cease to exist. It is hard to see what purpose Western civilization currently...