Decentralized finance is enjoying something of a renaissance in recent times as the space has seen continued growth. According to data from DeFi Pulse, the space has as much as $80 million worth of assets locked in it.
However, despite the level of growth it has enjoyed, crypto assets within the space have also been faced with the most attacks from hackers.
A new report from CipherTrace, a blockchain forensic firm, has corroborated this claim, having identified that DeFi-related hacks and fraud have cost protocols and their users $474 million within the first seven months of this year.
Decentralized finance, commonly known as DeFi, is a blockchain-based protocol offering financial services such as money lending, interest, assets swap, and other financial transactions independently without any intermediary. In contrast to the traditional financial system that relies on people and institutions to function, DeFi relies on smart contracts to automate transactions, offering users total control over their assets.
Per the CipherTrace report, 75 percent of hacks in cryptocurrency happens within DeFi. The report stated that “DeFi-related fraud accounted for 54% of major crypto fraud volume, whereas last year DeFi-related fraud only made up 3% of the year’s total.”
Also, the report identifies that most of the attacks on DeFi are carried out using flash loans i.e. hackers borrow a ton of funds from their target then use the borrowed funds to seize an arbitrage opportunity that allows them to pay back the loan in one transaction.
The crux of the problem lies not in platforms giving out the flash loans, but the unaudited smart contracts the loans are sent to and exploited.
It further highlighted 30 famous attacks of the year, such as PancakeBunny that lost $45 million to an attack. However, this figure is expected to increase higher as the sector continues to evolve.