Crime on Crypto ‘DeFi’ Sites Hits $10.5 Billion in 2021, Research Finds

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LONDON, Nov 18 (Reuters) – Fraud and theft on decentralized finance platforms has totaled $10.5 billion so far this year, according to research released on Thursday, laying bare the risks in the rapidly growing field but still largely unregulated cryptocurrencies.

So-called DeFi platforms allow users to lend, borrow and save – usually in cryptocurrencies – while bypassing traditional financial gatekeepers such as banks. Funders say the technology provides cheaper and more efficient access to financial services.

Money has been pouring into DeFi sites this year, reflecting the explosion of interest in cryptocurrencies as a whole. Many investors, faced with historically low or sub-zero interest rates, are drawn to DeFi by the promise of high returns on savings.

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Yet crime is also on the rise in the mostly unregulated sector, according to London-based blockchain analytics firm Elliptic. Users have suffered more than $12 billion in crime-related losses across DeFi apps, lending platforms and exchanges since 2020, with the majority of losses occurring in 2021 alone, he found.

Bugs in code and design flaws allow criminals to target DeFi sites, Elliptic found, with deep cash reserves also allowing criminals to launder the proceeds of crime while leaving few traces. Scams are also common, he added.

“Decentralized apps are designed to be trustless in that they eliminate third-party control of user funds,” said Elliptic’s Tom Robinson. “But you should always trust that the creators of the protocol did not make any coding or design error that could result in a loss of funds.”

Major DeFi platforms say they are taking a variety of steps to tighten security, from hiring outside firms to auditing code for vulnerabilities to maintaining the keys and passwords needed to access user wallets in secure environments.

The cryptocurrency worth around $86 billion is currently stored on DeFi platforms, up from $12 billion a year ago, according to industry tracker DeFi Pulse.

Major investors have also bet heavily on the sector’s growth, with Canadian pension fund Caisse de Depot et Placement du Quebec participating in a $400 million investment in major lending platform Celsius Network last month.

DeFi site Poly Network was rocked in August by a $610 million crypto theft, one of the largest ever – although the hacker later returned almost all of the loot. Read more

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Reporting by Tom Wilson Editing by Peter Graff

Our standards: The Thomson Reuters Trust Principles.

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