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    DeFi losses jumped 56.2% to almost $3.18 billion in 2022

    Tanya Sharma
    Tanya Sharma
    Published on January 9, 2023 9:20 AM

    Updated on January 16, 2023 1:35 PM

    During that time, almost $1.40 billion in stolen DeFi monies were allegedly laundered using Tornado Cash.
    DeFi losses jumped 56.2% to almost $3.18 billion in 2022
    Source: Unsplash

    According to a report released on January 5 by Chinese blockchain security firm LianAn Technology, decentralized finance (DeFi) attacks across blockchains globally will amount to $3.64 billion in 2022.

    This marked a 47.4% increase over the $2.44 billion deficit in 2021. Despite an 80% drop in total value locked in DeFi over the year, the number of occurrences climbed.

    According to Immunefi's Crypto Losses 2022 report, nearly $3.9 billion was "lost" last year. While that may appear to be a large sum of money to lose track of, it is down 51.2% from 2021, when over $8 billion was stolen, according to the research

    Crypto losses are described as a combination of hacks and claimed fraud instances, according to Adrian Hetman, tech lead of Immunefi's triaging team. In 2022, the majority of losses, totaling $3.77 billion, were caused by hacking in 134 separate incidents. 

    Approximately $175 million was lost to fraud over 34 occurrences within the same period.

    Related: DeFi Still Holding High Potential After a Hectic Year

    Market Jolting DeFi Events

    Major catastrophic events occurred in both decentralized finance (DeFi) and centralized finance (CeFi), including the implosion of the Terra/LUNA ecosystem and the demise of the centralized crypto exchange FTX. However, Immunefi indicated that DeFi was the top target for (successful) exploits at over 80%.

    With 65 and 49 occurrences, respectively, the two most targeted blockchains last year were BNB Chain — the blockchain ecosystem of crypto exchange Binance — and the layer-1 blockchain Ethereum.

    BNB Chain and Ethereum accounted for more than half of all blockchain attacks (63.3%). Solana came in second, with 12 incidences, or 6.7% of overall attacks in 2022.

    Looking back, each quarter had a few multimillion-dollar losses, some more than others. While each quarter saw losses, the fourth quarter experienced the greatest, with $1.62 billion in total losses over 55 occurrences, accounting for nearly half of the total losses for the year.

    However, five large exploits accounted for almost 60% of all losses in 2022: Ronin Bridge's $625 million, Wormhole's $326 million, Nomad's $190 million, BNB Chain's $570 million, and FTX's $650 million.

    In 2022, roughly 5% of total losses, or $204 million, were recovered.

    Looking ahead to 2023, crypto "losses" are likely to be in the billions once more as more participants enter the field and cash continues to stream in. Long-term solutions will require better security measures, which not all projects, blockchains, protocols, and other digital asset companies have prioritized.

    There are also bug bounty and security services platforms aimed at protecting web3 firms and their users – but until these become industry standards, more will fall victim to hackers and fraudulent activities.

    In 2022, 51.5% of the 167 major occurrences happened in audited projects, while 48.5% occurred in non-audited projects.

    LianAn claimed that 38.7%, or $1.40 billion, of stolen assets, were laundered through the cryptocurrency mixer Tornado Cash. Throughout the year, just $289 million in funds were recovered. However, the number is likely to be greater because numerous recoveries have yet to be made public due to law enforcement requests.

    In 2022, the total global blockchain-related crime (excluding financial crimes) was $13.7 billion. Money laundering incidents topped the list, accounting for $7.33 billion, followed by DeFi exploits ($3.6 billion), multilevel marketing scams ($1.0 billion), and fraud ($830 million).

    Apart from the bankruptcy of bitcoin exchange FTX, there were 243 incidences of fraud and rug pulls over the period, totaling $425 million.

    "The year 2022 was bleak for the worldwide blockchain industry's security. As a result, security requirements will be higher and more pressing in 2023. In 2023, we must consider and handle important concerns such as how to respond to cyber attacks, how to quickly develop a worldwide regulatory framework, and how to employ technological breakthroughs to resolve security challenges."

    Also Read: DeFi is transforming the way forward

    Is DeFi secure?

    The growing interest in DeFi applications demonstrates that investing outside of the regular financial system has great appeal. Bank savings accounts may pay 0.5% APY, whereas DeFi lending sites may pay 8% APY.

    Investing digital assets in a DeFi initiative may appear intimidating, but depositing cash in centralized finance carries risks. Defi networks are slightly more complex.

    Traditional finance relies on financial institutions to act in your best interests. Meanwhile, decentralized finance is like the wild west of bitcoin holdings. 

    Prudent DeFi control

    Few topics in DeFi are as contentious as disputes about regulation. Regardless of which side of the regulatory debate you favor, recent events in the crypto market makeup have catalyzed a more aggressive regulatory agenda that will hit DeFi at some point.

    Regulation can certainly be harmful to DeFi innovation, but when used correctly, it represents an exciting possibility for institutional adoption of the space. Many regulated financial institutions are struggling to square DeFi's financial benefits and potential with the industry's regulatory ambiguity.

    DeFi FAQs

    Is there hope for DeFi?

    Exciting times lie ahead: shortly, financial and economic services will be powered by Distributed Ledger Technology (DLT), which is a decentralized database administered by various participants with no central administrator.

    What is the purpose of DeFi?

    Decentralized finance (DeFi) is a new financial technology that is posing a threat to the current centralized banking system. DeFi reduces fees charged by banks and other financial institutions for using their services and encourages the use of peer-to-peer, or P2P, transactions.

    Is DeFi decentralized?

    A large number of DeFi protocols are not fully decentralized. They may operate autonomously, although they, like centralized entities, are controlled by a group or an individual.