‘Decentralised finance’ criminal attacks on the rise

Crime in the growing ‘decentralized finance’ (DeFi) sector is on the rise, according to a report from crypto intelligence specialist CipherTrace.

Losses from cryptocurrency thefts, hacks, and fraud declined to $1.8 billion for the first 10 months of the year compared with last year, but crime in the hot DeFI increased.

Crypto crime hit $4.5 billion globally in 2019.

So far this year, losses from thefts and hacks, excluding misappropriation and fraud, grew to $468 million as of end-October, up 30% from $361 million for the whole of last year, according to the CipherTrace report.

Some 20% of those hacks, or roughly $98 million, came from “decentralized finance” or DeFi, which are transactions on platforms that facilitate lending outside of banks.

The total number of loans on DeFi platforms was $12.6 billion as of late Monday, industry site DeFi Pulse data showed, up more than 200% from roughly $4 billion in August.

DeFi sites run on open infrastructure, with algorithms that set rates in real time based on supply and demand.

The surge in DeFi has been the bait attracting criminal hackers, resulting in the most hacks for the sector this year.

In 2019, DeFi hacks were virtually negligible, CipherTrace said.

“What we have seen is that exchanges and other cryptocurrency players have implemented more security procedures,” Dave Jevans, CipherTrace’s CEO, said in an interview with Reuters.

“They have taken the guidance and implemented the procedures to secure their funds better. So you’re going to see less mass-scale hacks.”

He added that companies and individuals have rushed DeFi products to market that have not gone through security verification and validation, so people “are figuring out that there’s a weakness here”.

DeFi  networks often lack clear regulatory compliance, so in theory anyone in any country is able to access them  with little to no customer-verification hurdles involved.

As a result, Jevans said  DeFi can easily become a haven for money launderers.