Decentralized Finance (DeFi) is one of the core sectors in the cryptocurrency industry where cryptocurrency projects offer opportunities to trade, earn and make passive income through participation in various projects offering its services. This year, data from The Block research revealed that in 2021, a total of $610 million was lost to theft from 50 projects.
The data revealed that in 2020, over $77 million was lost in exploits, which mostly occurred during the DeFi summer frenzy. When compared to the $610 million lost in 2021, this is a 692% increase in funds stolen as a result of DeFi exploits.
According to the data, $355 million, representing 58.20%, was lost using flash loan attacks while the rest ($255 million, representing 41.80%) was lost using other forms of methods, like exploiting a bug in a given protocol.
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What you should know
The Block research attributed the increase in DeFi exploits to a ‘lack of sufficient number of security experts.’ It stated, “However, due to the lack of sufficient number of security experts, less competition on other EVM-compatible chains, and the inability to quickly upgrade a vulnerable smart contract, history repeated itself.”
It is also noteworthy to mention that in the year, $704 million was returned to their respective projects, in which the majority of the funds belonged to the Poly Network exploit funds which were returned accounting for $611 million, which represents 86.80% of the total funds returned. This means a total of $1.314 billion was actually stolen during the year. This also means 53% of the exploited funds was returned during the year.
Cream Finance has the largest exploit this year with $130.8 million stolen from the DeFi platform. This attack accounted for 21.44% of the total DeFi exploits. Close runner up was the exploit that happened on Compound, where $62 million was stolen from the platform, accounting for 10.16%. Uranium Finance took third spot with $51 million stolen from the platform, accounting for 8.36% of total attacks.
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The report further stated, “The latest insight is confirmation that we live in a multi-chain world. While most exploits still occur on Ethereum, they have also been consistently seen since April on BSC and Polygon, and Avalanche. About a third of all stolen funds ($200 million) belonged to projects on BSC, which suffered the most in May this year.”
The Ethereum blockchain accounted for 60.4% of the stolen funds. Binance’s Binance Smart Chain accounted for 32.8% of the exploits and Avalanche’s blockchain came in third, accounting for 6.4% of the total exploits.
Conclusion
The Block research expects more institutional participation in DeFi as an outlook for 2022. However, a need for permissioned access is needed to encourage institutional participation. It states, “Institutions are eager to deploy capital into the DeFi space but face countless obstacles due to regulatory uncertainties, from KYC/AML practices to concerns related to securities laws.” It further reads, “Some protocols cultivate the notion of “permissioned DeFi,” pardon the oxymoron, which could satisfy existing compliance requirements. Some believe that such development defeats the purpose of DeFi. Be that as it may, trustlessness is not the solution to everything. Some applications require trust in certain parties, such as borrowers and facilitators of uncollateralized lending, custodians of RWA tokenization, etc. Open finance should not be just about decentralizing every aspect of finance but about bringing options and transparency to users.” It concluded stating, “the bifurcation of DeFi seems inevitable.”
