Crime on DeFi Crypto Sites Reaches $ 10.5 Billion in 2021, Study Finds

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Representations of Bitcoin and other cryptocurrencies on a screen showing binary codes are seen through a magnifying glass in this illustrative photo taken on September 27, 2021. REUTERS / Florence Lo / Illustration / File Photo

LONDON, Nov. 18 (Reuters) – Fraud and theft on decentralized financial platforms have totaled $ 10.5 billion so far this year, research revealed Thursday, exposing risks in the area by rapid but still unregulated growth of cryptocurrencies.

So-called DeFi platforms allow users to lend, borrow, and save – typically in cryptocurrencies – while bypassing traditional gatekeepers of finance such as banks. Donors say technology provides cheaper and more efficient access to financial services.

Money has poured into DeFi sites this year, reflecting the explosion of interest in cryptocurrencies as a whole. Many investors, faced with historically low or sub-zero interest rates, are drawn to DeFi by the promise of high returns on savings.

Yet crime is also on the rise in the largely unregulated sector, according to London-based blockchain analytics firm Elliptic. Users have suffered more than $ 12 billion in losses from crime on DeFi apps, lending platforms and exchanges since 2020, with the majority of the losses occurring in 2021 alone, he found.

Bugs in the code and design flaws allow criminals to target DeFi sites, Elliptic found, with deep pools of cash also allowing criminals to launder the proceeds of crime while leaving little trace. Scams are also common, he added.

“Decentralized applications are designed to be trustless in that they eliminate third-party control over user funds,” said Tom Robinson of Elliptic. “But you still have to believe that the creators of the protocol didn’t make any coding or design errors that could result in a loss of funds.”

Major DeFi platforms say they are taking a variety of measures to strengthen security, from hiring outside companies, auditing code for vulnerabilities, and maintaining the keys and passwords needed for security. access user portfolios in secure environments.

Around $ 86 billion worth of cryptocurrency is currently stored on DeFi platforms, up from $ 12 billion a year ago, according to industry tracker DeFi Pulse.

Large investors have also staked heavily on the growth of the sector, with Canadian pension fund Caisse de Dépôt et Placement du Quebec participating last month in a $ 400 million investment in the large loan platform Celsius Network.

DeFi site Poly Network was rocked in August by a $ 610 million crypto theft, one of the largest on record, though the hacker later returned almost all of the loot. Read more

Reporting by Tom Wilson Editing by Peter Graff

Our Standards: Thomson Reuters Trust Principles.

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