Blockchain analytics firm Elliptic says the rapidly expanding decentralized finance (DeFi) sector of the crypto world has seen fraudsters make off with billions of dollars in illicit gains.
In a new report called “DeFi: Risk, Regulation, and the Rise of DeCrime,” the firm coins the new term “DeCrime” to highlight the type of theft that has increased by 600% since 2020. Total losses as of this month were over $12 billion.
An official press release says,
“This rise in popularity of DeFi has attracted a significant increase in associated DeCrime. Losses have been suffered by DeFi users and investors, due to the malicious exploitation of flaws in decentralized applications (DApps) such as decentralized exchanges (DEXs), lending protocols and asset management offerings.
These losses include direct loss of funds stolen from DApps, as well as losses suffered by holders of tokens associated with these protocols.”
Elliptic chief scientist Tom Robinson says that the trustless nature of DApps provides thieves with opportunities to take advantage of the nascent DeFi space.
“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed. 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.”
The firm says that flaws in the design of DApps account for the vast majority of losses, totaling $10.8 billion. Scams initiated by project developers resulted in another billion dollars in stolen funds.
Robinson thinks the technology will become an integral part of the broader financial sector as DeFi evolves beyond the current experimental stage.
“DeFi looks set to become an increasingly important part of our financial system, making financial services more accessible, efficient and competitive. But we are still at the experimental stage and DeFi users face significant risks.
As the technology matures and becomes better-regulated, losses will fall and DeFi will become a practical alternative to the banks, asset managers and exchanges that we currently rely upon.”
You can read the full Elliptic report here.
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