Decentralized Finance, or DeFi, refers to a system in which financial products are made available on a public, decentralized blockchain network. In 2021, DeFi has been a thriving sector, with talks of it replacing traditional finance by 2030.
As the DeFi sector grows, cyber criminals continue to invent new ways of defrauding investors of their funds. According to blockchain analysis provider, Elliptic, over $10.5 billion worth of user funds has been stolen through DeFi fraud and theft in 2021.
DeFi Losses At an All-Time High
According to Elliptic, the total amount lost to DeFi exploits so far in 2021 exceeds $12 billion.
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According to the report, fraud and theft account for $10.5 billion, meaning that the amount lost in DeFi protocols in 2021 is already more than 7x the entire amount lost in 2020.
The London-based blockchain analytics firm explained that the large quantities of capital raised by DeFi projects have attracted a lot of scammers and hackers who look to exploit bugs in the code and design flaws to siphon millions worth of investors’ funds.
The most notable exploits in 2021 include the $610 million Poly Network hack, PAID Network’s $180 million losses from an exploit, and the $130 million Cream Finance exploit.
There have also been several DeFi rug-pulls where scammers managed to convince investors to buy their tokens, and then, once ample funds have been raised, the scammers disappear with the money, leaving investors with valueless tokens.
On the Flipside
- Regardless of being called the “Wild West” of crypto, DeFi protocols have continued to grow, with the total value locked in the sector reaching $258 billion.
Why You Should Care
Although DeFi is widely regarded to be the successor of traditional finance, DeFi protocols need to improve their security in order to obtain greater trust, and therefore, wider adoption.
