Criminals have made off with over $10 billion in ‘DeFi’ scams and thefts this year

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  • According to a report by Elliptic, DeFi exploits have caused a total loss of $12 billion in 2021 so far.
  • Of that amount, $10.5 billion was from fraud and theft – a sevenfold increase from the previous year.
  • DeFi, or decentralized finance, products aim to replicate traditional financial services using blockchain.

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LONDON — Investors have lost billions of dollars this year thanks to criminals targeting so-called “decentralized finance” platforms.

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More than $10 billion worth of user funds have been stolen in cases of fraud and theft on DeFi products, according to a report by London-based firm Elliptic, which aims to replicate traditional financial services using blockchain technology.

DeFi is often referred to as the “Wild West” of cryptocurrencies. Such services often promise huge returns to the users, but there is no involvement of middlemen like banks. High-interest rate savings and lending products are a common sight in this sector.

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But, as expected from a young industry like crypto, the DeFi platform is not regulated. This is something regulators have tried to catch in the midst of recent major hacks and scams.

The total losses due to DeFi exploits have totaled $12 billion so far in 2021, according to Elliptic, a firm that tracks the movement of funds on the digital ledger underpinning cryptocurrencies.

Of that amount, $10.5 billion was from fraud and theft – a sevenfold increase from the previous year.

“The DeFi ecosystem is an incredibly exciting and fast-moving space, with innovation in financial services happening at a light pace,” said Tom Robinson, Elliptic Chief Scientist.

“It’s attracting huge amounts of capital to projects that aren’t always robust or well tested. Criminal actors see an opportunity to take advantage of this.”

Over the past two years, the total amount deposited into DeFi services has grown from just $500 million to $247 billion.

This comes as the price of bitcoin and other cryptocurrencies have soared this year. Ethereum, the network behind the world’s second largest digital coin, is considered the backbone of many DeFi applications.

But as the size of the market grew, so did the level of illegal activities. Earlier this year, DeFi platform Poly Network lost more than $600 million in the biggest cryptocurrency theft of the time.

In a bizarre turn of events, the entire funds were later recovered by hackers who claimed they exploited the Pauli network to uncover flaws in their systems.

There have also been several so-called “rag pulls”, where scammers convince investors to buy their tokens and then withdraw funds after raising a certain amount.

regulation

Regulators are concerned about the rapid growth of DeFi.

The Securities and Exchange Commission is seeking information from Uniswap Labs, the start-up behind the decentralized crypto exchange of the same name, about how investors use the platform and the way it is marketed.

A Uniswap Labs spokesperson said the firm is committed to complying with the law and assisting regulators with their inquiries.

The problem, say experts, is that DeFi services often present themselves as decentralized, when this is not always the case.

The Financial Action Task Force, a global anti-money laundering watchdog, recently issued revised guidance on cryptocurrencies, calling on countries to identify individuals with “control or substantial influence” on DeFi programs.

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