Criminals have made off with over $10 billion in ‘DeFi’ scams and thefts this year
KEY POINTS
• Overall losses caused by DeFi exploits have totaled $12 billion so far in 2021, according to a report from Elliptic.
• Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from last year.
• DeFi, or decentralized finance, products aim to replicate traditional financial services using blockchain.
• LONDON — Investors have lost billions of dollars to criminals targeting so-called “decentralized finance” platforms this year.
• According to a report from London-based firm Elliptic, more than $10 billion worth of user funds has been stolen in cases of fraud and theft on DeFi products, which aim to replicate traditional financial services using blockchain technology.
• DeFi has often been referred to as the “Wild West” of cryptocurrencies. Such services often promise users huge returns but lack any involvement from middlemen like banks. High-interest rate savings and lending products are a common sight in the space.
• But, as is to be expected with a young industry like crypto, DeFi platforms aren’t regulated. It’s something regulators have tried to come to grips with recently amid a spate of major hacks and scams.
• Overall losses caused by DeFi exploits has totaled $12 billion so far in 2021, according to Elliptic, a firm which tracks movements of funds on the digital ledgers that underpin cryptocurrencies.
• Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from last year.
• “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.”
• Over the last two years, the total amount of money deposited at DeFi services has spiked from just $500 million to $247 billion.
• It comes as the price of bitcoin and other cryptocurrencies have rallied this year. Ethereum, the network behind the world’s second-biggest digital coin, is considered the backbone of many DeFi applications.
• But as the market has grown in size, so has the level of illicit activity. Earlier this year, DeFi platform Poly Network lost more than $600 million in what was, at the time, the biggest cryptocurrency theft of all time.
• In a bizarre turn of events, the entirety of the funds was later restored by the hackers, which claimed they exploited Poly Network to highlight flaws in its system.
• There have also been a number of so-called “rug pulls,” where scammers convince investors to buy their token and then take off with the funds after raising a certain amount.
• Regulation
• Regulators are growing concerned about the rapid rise of DeFi.
• The Securities and Exchange Commission is seeking information from Uniswap Labs, the start-up behind a decentralized crypto exchange of the same name, on how investors use the platform and the way in which it is marketed.
• A Uniswap Labs spokesperson said the firm was committed to complying with the law and assisting regulators with their inquiries.
• The problem, experts say, is that DeFi services often market themselves as decentralized, when that isn’t always the case.
• The Financial Action Task Force, a global anti-money laundering watchdog, recently released revised guidance on cryptocurrencies calling on countries to identify individuals with “control or sufficient influencer” over DeFi programs.
Criminals have made off with over $10 billion in ‘DeFi’ scams and thefts this year
KEY POINTS
• Overall losses caused by DeFi exploits have totaled $12 billion so far in 2021, according to a report from Elliptic.
• Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from last year.
• DeFi, or decentralized finance, products aim to replicate traditional financial services using blockchain.
• LONDON — Investors have lost billions of dollars to criminals targeting so-called “decentralized finance” platforms this year.
• According to a report from London-based firm Elliptic, more than $10 billion worth of user funds has been stolen in cases of fraud and theft on DeFi products, which aim to replicate traditional financial services using blockchain technology.
• DeFi has often been referred to as the “Wild West” of cryptocurrencies. Such services often promise users huge returns but lack any involvement from middlemen like banks. High-interest rate savings and lending products are a common sight in the space.
• But, as is to be expected with a young industry like crypto, DeFi platforms aren’t regulated. It’s something regulators have tried to come to grips with recently amid a spate of major hacks and scams.
• Overall losses caused by DeFi exploits has totaled $12 billion so far in 2021, according to Elliptic, a firm which tracks movements of funds on the digital ledgers that underpin cryptocurrencies.
• Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from last year.
• “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.”
• Over the last two years, the total amount of money deposited at DeFi services has spiked from just $500 million to $247 billion.
• It comes as the price of bitcoin and other cryptocurrencies have rallied this year. Ethereum, the network behind the world’s second-biggest digital coin, is considered the backbone of many DeFi applications.
• But as the market has grown in size, so has the level of illicit activity. Earlier this year, DeFi platform Poly Network lost more than $600 million in what was, at the time, the biggest cryptocurrency theft of all time.
• In a bizarre turn of events, the entirety of the funds was later restored by the hackers, which claimed they exploited Poly Network to highlight flaws in its system.
• There have also been a number of so-called “rug pulls,” where scammers convince investors to buy their token and then take off with the funds after raising a certain amount.
• Regulation
• Regulators are growing concerned about the rapid rise of DeFi.
• The Securities and Exchange Commission is seeking information from Uniswap Labs, the start-up behind a decentralized crypto exchange of the same name, on how investors use the platform and the way in which it is marketed.
• A Uniswap Labs spokesperson said the firm was committed to complying with the law and assisting regulators with their inquiries.
• The problem, experts say, is that DeFi services often market themselves as decentralized, when that isn’t always the case.
• The Financial Action Task Force, a global anti-money laundering watchdog, recently released revised guidance on cryptocurrencies calling on countries to identify individuals with “control or sufficient influencer” over DeFi programs.
Source: Over $10 billion lost to ‘DeFi’ scams and thefts in 2021 (cnbc.com)