Cyber crooks have made off with more than $12 billion in stolen funds through decentralized finance scams so far this year, an increase of more than 600 percent from last year, according to a new analysis.
Decentralized finance platforms, popularly known as DeFi, have been hailed by enthusiasts as the future of a global financial system that doesn’t rely on banks or other central organizations.
But the nascent industry remains largely unregulated and as it boomed earlier this year along with the surge in cryptocurrencies, fraud was quick to follow, according to Elliptic, which tracks movements of funds on blockchain networks.
“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed,” Elliptic’s chief scientist Tom Robinson said in a statement.
“This is attracting large amounts of capital to projects that are not always robust or well-tested. Criminal actors have seen the opportunity to exploit this.”
The total funds circulating among DeFi services has spiked from just $500 million in November 2019 to a whopping $247 billion now, according to Elliptic.
Elliptic’s report said that mistakes in the design and development of decentralized apps are the most common cause of fraud, while some $1 billion in losses this year have resulted from so-called exit scams or “rug pulls” in which the developers intentionally steal the funds deposited, like what happened earlier this month with the “Squid Game” cryptocurrency.
The DeFi industry is still in its infancy, or as Robinson put it, “at the experimental stage,” and investors still 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,” he added.
The boom in DeFi fraud comes as the value of nearly all cryptocurrencies has soared this year. Bitcoin, Ethereum and even much smaller cryptos have become hugely valuable, minting new billionaires and gaining support from a handful of institutional investors.