According to a recent report released by blockchain and crypto security analytics firm CipherTrace, the DeFi sector resulted in $100 million lost in thefts and hacking attacks this year. Currently, the Total Value Locked (TVL) on DeFi protocols have hit a new all-time-high of $13.03 billion after experiencing precipitous growth throughout the year. This has come with consequences as well, seeing as the sector is responsible for 21% of all hacks and theft this year.
The dark blue portion which belongs to DeFi in the above diagram does not include the largest crypto hack of the year thus far at more than $200 million lost by centralized crypto exchange KuCoin. While not classified under DeFi thefts, the assets siphoned from KuCoin were thereafter laundered mainly via decentralized exchanges, including leading DEX Uniswap. This indicates that DeFi remains the main originator and also facilitator of online crypto-related thefts.
The inflow of capital into DeFi is startling, especially as security for DeFi is comparably weaker than other products and offerings in the crypto industry as a whole. Low compliance and regulatory requirements for the sector have made it a rapidly-improving and changing space perfect for innovation, but also one that is fraught with loopholes and vulnerabilities ripe for the picking by malicious online actors.
“I do think it scares me a little bit how much capital is being dumped into contracts that are unaudited. I think that getting security audits is, overall, an important part of maturing any one of these systems,” said Olaf Carlson-Wee, the founder and CEO of Polychain Capital.
Despite a decline in trading volumes for the DeFi market in Q3, the TVL for DeFi continues to rise and hit new highs as we approach the end of the year. The DeFi bubble has not burst yet, and there is some breath left in it yet should projects rebrand and offer new business models not currently seen in the market. One thing is for certain, should capital continue to flow into DeFi, financial regulators worldwide will have to step in, leading to another potential storm for the industry.
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