Fraudulent activities have been running rampant on Decentralized Finance (DeFi) platforms, according to new research conducted by crypto analysis firm Elliptic.
The losses have amounted to up to $10.5 billion, illustrating the real risks associated with DeFi—an industry that is still considered an unregulated part of cryptocurrencies.
DeFi platforms make crypto transfer easier for many by allowing the users to lend, borrow and save crypto using smart contracts. The technology has excluded traditional banks as intermediaries and made crypto transfers direct and simple, a step regarded by many as transformative for the broader financial sector.
However, DeFi platforms have frequent hacks and frauds, which according to blockchain data analytics firm Elliptic, amount to $10.5 billion in 2021.
DeFi and associated risks factors
According to Elliptic, DeFi has grown increasingly popular with the masses and has attracted a lot of investors ready to invest their stake. The sudden outpouring of funds in the sector has given birth to soaring crime associated with money laundering, where a large part of funds has been employed in sponsoring illicit activities.
“A tempting honeypot for hackers and a deep pool of liquidity that can be taken advantage of by money launderers,” the reports noted.
It also highlighted how the hackers have exploited the platform by utilizing dApps or decentralized applications to engage in illicit financial activities or “DeCrime ” as per Elliptic.
“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed, 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,” said Tom Robinson, chief scientist at Elliptic.
The continuous exploitation via thefts and scams has caused DeFi platforms to shed approximately $10.5 billion (as of November 9, 2021), reporting a striking increase of 600% from last year.
The majority of the losses have been borne by dApps, which have lost roughly $8.6 billion, followed by Binance Smart Chain with losses amounting to $2.5 billion.
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