Criminals are exploiting DeFi tech in its infancy, Elliptic cautions

Losses from fraud and theft involving DeFi have increased 600% since 2020, reaching $10.5bn in 2021, according to a report released by London-based blockchain analysis provider Elliptic.

Elliptic report, DeFi: Regulation, Compliance and the Growth of DeCrime, reveals that as of November 2021 just over $12bn in losses have been suffered by DeFi users and investors, due to the malicious exploitation of flaws in decentralised applications (DApps) such as decentralised exchanges (DEXs), lending protocols and asset management offerings. These losses include direct loss of funds stolen from DApps, as well as losses suffered by holders of tokens associated with these protocols.

DeFi platforms have risen in popularity in recent years, fuelling a boom in cryptoasset use. As a result, associated DeCrime, a term coined by Elliptic to denote financial crime that involves DeFi tools, has risen.

According to the report, the prevalence of DeFi theft and crime is largely due to the untested and immature nature of the technology available.

Mistakes in the design and development of decentralised apps are the most common cause, Elliptic said, giving rise to bugs which hackers can exploit, accounting for $10.8bn of all losses. Another $1bn of losses are the result of exit scams.

Tom Robinson, chief scientist at Elliptic, said, ?DeFi looks set to become an increasingly important part of our financial system, making financial services more accessible, efficient and competitive.

?But we are still at the experimental stage and DeFi users face significant risks. As the technology matures and becomes better-regulated, losses will fall and DeFi will become a practical alternative to the banks, asset managers and exchanges that we currently rely upon.p>

Copyright ? 2021 FinTech Global

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