The FBI warns against investing in decentralised finance (DeFi), since $1.3 billion was stolen from bitcoin exchanges in the first three months of this year.
Close to ninety-seven percent of this cryptocurrency was stolen via DeFi platforms, the Bureau observed, citing findings from US blockchain analysis firm Chainalysis.
DeFi systems provide access to various financial assets using smart contracts on a blockchain, bypassing the need for traditional financial intermediaries like banks, stock exchanges, and brokerages.
Just how severe is this issue?
According to Chainalysis, the $1.3 billion stolen in 2020 was a 72% increase from the sum in 2021, and a 30% increase from 2019.
The FBI also emphasised several patterns it had seen in its own investigations, in addition to those found in the report.
Some of these hackers were responsible for the loss of almost $3 million worth of cryptocurrencies from investors and the project’s creators when they began a “flash loan” that exploited a DeFi platform’s smart contracts.
Moreover, it saw an attack where hackers manipulated cryptocurrency price pairs by exploiting a series of vulnerabilities, before conducting leveraged trades, and another where hackers used a signature verification vulnerability in a DeFi platform’s token bridge to withdraw all of the platform’s investments.
Directed energy weapons
If this hasn’t turned you off DeFi entirely, the FBI offers some safety advice.
Among them include being familiar with the unique dangers associated with DeFi investments and conducting thorough research on DeFi platforms, protocols, and smart contracts before to making any financial commitments.
The FBI also cautioned investors to be wary of DeFi investment pools with unusually short sign-up windows and quick smart contract rollouts, as well as to check that the DeFi investment platform has undergone one or more code audits done by independent auditors.
The FBI also warned about the dangers of using crowdsourcing methods for vulnerability detection and patching, as open source code repositories might provide anybody with “nefarious motives” free access to the code.
Even though DeFi is still a dangerous venture for customers, the danger it poses to the economy as a whole may be manageable for the time being.
Currently, “direct risks to the stability of the UK financial system from cryptoassets and DeFi are minimal,” according to a paper by the Bank of England’s financial policy committee (opens in new tab).
Not that the growth of DeFi won’t have an effect on the broader economy down the road.
Further, “if the speed of growth observed in recent years continues, and as these assets become increasingly intertwined with the wider financial system, cryptoassets and DeFi will provide financial stability issues,” the paper states.
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