DeFi Losses Top $10B From Exploits, Fraud, Theft

Decentralized finance (DeFI) platforms have been the target of criminal attacks, with fraud and theft topping $10 billion, according to a report entitled Risk, Regulation, and the Rise of DeCrime from Elliptic

Capital tied up in DeFi services has grown 1,700 percent to $247 billion in the past year, with the number of users escalating since 2019. DeFi sought to revolutionize financial services by using software running on blockchains instead of centralized intermediaries.

“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed,” said Tom Robinson, chief scientist at Elliptic.

“This is attracting large amounts of capital to projects that are not always robust or well-tested. Criminal actors have seen the opportunity to exploit this.”

See also: DeFi Propels Crypto’s Path Toward Solving B2B Payments Pain Points

The openness of DeFi is part of what makes it vulnerable to fraudsters. The underlying technology is built on an open infrastructure, which offers broader access. But that technology is “relatively immature and untested,” according to the report, and has given rise to criminals using DeFi to launder funds from crimes, ransomware and other online fraud.

Often called the “Wild West” of cryptocurrency, DeFi services often dangle big returns without the use of intermediaries like banks.

Crypto assets in the billions have been robbed from centralized exchanges that have immature cybersecurity.

“The irreversible nature of crypto transactions make it very challenging to recover these funds,” says the report.

“One of the main motivations behind DeFi has been to eliminate third party control of users’ assets. Instead of a service provider taking custody of your funds in order to provide financial services, they are instead held by a smart contract.”

Read more: BlockBank Unveils DeFi Application With AI-Powered Robo Advisor

The global anti-money laundering watchdog, the Financial Action Task Force, recently released revised guidance on cryptocurrencies. It has asked that countries identify individuals with “control or sufficient influencer” over DeFi programs.