DeFi Thefts Up By 1330 Per Cent In 2021, Precautions Crypto Investors Should Take

While there has been an exponential rise in crypto thefts in 2021, DeFi theft accounted for more than 70 per cent of the thefts happened in 2021. Here are some precautions investors and crypto platforms can take to minimize this trend of rising theft.

According to a recent report by Chainalysis, a block chain data platform, with growing investor interest in digital assets such as cryptocurrency, there has been an exponential rise in thefts and crimes in decentralized finance (DeFi). While crypto theft increased more than threefold between 2020 and 2021, DeFi theft contributed the most to this increase.

Crypto Theft  

Year  Total Number of Theft   Total Value Stolen  
2017  19  $0.5 Billion  
2018  35  $1.5 Billion 
2019  35  $0.8 Billion 
2020  117  $0.8 Billion  
2021  250  $3.0 Billion  

According to a recent report by Chainalysis, a block chain data platform, with growing investor interest in digital assets such as cryptocurrency, there has been an exponential rise in thefts and crimes in decentralized finance (DeFi). While crypto theft increased more than threefold between 2020 and 2021, DeFi theft contributed the most to this increase.

Annual total cryptocurrency value stolen Through DeFi Theft 

Year 

Value Stolen  

2019 

$100 Million 

2020 

$200 Million 

2021 

$2.3 Billion 

Source: Chainalysis, (Approx. Value) 

With $923 million in total stolen funds and 64 theft incidents in 2020 and 2021, lending platforms such as yield farming protocols suffered the greatest losses. Infrastructure services such as cross-chain protocols and oracles-as-a-service came in second, with decentralized exchanges (DEXes) and decentralized autonomous organizations (DAOs) also facing significant thefts.

Factors Contributing to the Increase

According to the report, while the blockchain ecosystem has always been chastised by cyber experts for lax security measures, DeFi platforms have been the most vulnerable zone. Here are some of the major factors that will contribute to an exponential increase in DeFi thefts in 2021.

1. Exploitation of Code

According to the report, code exploitation is a major cause of DeFi theft because it allows access to the code and causes a security breach. According to the report, code exploits accounted for 49.8 percent of total value stolen across all crypto services in 2021, and code exploitation is responsible for more than 65 percent of DeFi thefts. "Many of the DeFi platforms have been built on public blockchains, and many have open-source code." In that case, hackers can easily access the code and find ways to breach security," says Bibin Babu, co-founder of Colexion, a blockchain-based NFT marketplace.

2. A Lack of Appropriate Audits

Inadequate audits are another leading cause of DeFi thefts. According to the report, less attacks occur on platforms that have been audited within the last year. According to the report, 30 percent of code exploits occurred on platforms audited in the previous year. It also occurred because there were likely to be significant audit shortfalls. "They may patch smart contract vulnerabilities in some cases, but they rarely guarantee that platforms' price oracles are tamper-proof," according to the report.

3. Absence of a Transaction Revocation Process

Experts believe that DeFi platforms have become an easy target for cyber criminals because the transactions that take place on such platforms are irreversible, making it impossible for an investor to request a refund. "We've seen crypto exchanges hacked and people phished out of all their money – there's no transaction revocation process, the security is rudimentary, so naturally the platform became a target for extremely persistent and skilled criminals," says Kevin Reed, a cyber security expert at Acronis CISO, a cyber data protection firm.

Furthermore, the absence of a validation process makes it even more vulnerable. "DeFi platforms almost never have a validation process to confirm transactions," says Amogh Tiwari, founder of Deefy, an NFT service provider and credit score management firm.

Investors and Platforms Should Take Precautionary Measures

While theft is on the rise, investors cannot stop investing in DeFi products, and DeFi platforms cannot stop growing their businesses. So, here are some preventative measures that could reduce the number of DeFi thefts.

1. It is critical to conduct extensive research.

Before investing in DeFi platforms, cyber security experts advise investors to conduct extensive research. "Before investing in crypto or Defi projects and/or tokens, awareness and thorough research should be the rule of thumb." "It is prudent and recommended to transact through reputable centralized exchanges (CEXs) and decentralized exchanges (DEXs)," says Om Malviya, President of Tezos India, a block chain strategy design firm.

2. Recognize The Red Flag

If a DeFi app or platform does not share its source code, it should be regarded as a red flag, and investors should avoid investing there. "Apps that don't share their code details should be avoided," Babu adds.

3. Seek out Smart Contracts

A smart contract is a digital contract that uses the blockchain's security coding to have details and permissions written in code that require an exact sequence of events to occur in order to trigger the agreement of the terms mentioned in the smart contract. Experts advise those with basic coding knowledge to look for the smart contracts of DeFi platforms before investing.

4. System of Full Proof Coding

According to experts, investors should only invest through DeFi platforms that have a full proof coding system. Experts say that having a full proof coding system ensures that code can be backtracked, making it more difficult for hackers to create a security breach.

Source: Outlook India

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