Losses from theft, hacks and fraud in “decentralized finance” or DeFi, a thriving segment in the cryptocurrency sector, hit an all-time high in the first seven months of the year, a report from crypto intelligence firm CipherTrace showed on Tuesday.
But crime losses in the overall cryptocurrency market fell sharply to $681 million at the end of July, compared to $1.9 billion for all of 2020 and $4.5 billion in 2019.
The decline in crypto crime generally reflected the industry’s growing maturity and much-improved security infrastructure, investors said.
The DeFi sector, on the other hand, posted criminal losses of a record $474 million from January to July.
DeFi applications, many of which run on the Ethereum blockchain, are financial platforms that enable crypto-denominated lending outside of traditional banks.
“It should come as no surprise that as the DeFi ecosystem expands, so do DeFi crimes,” Dave Jevans, CipherTrace’s chief executive officer, said in an email to Reuters.
“Just eight months into 2021, DeFi hacks, thefts and frauds have already surpassed the total DeFi crime rate of 2020. This means that regulators around the world are paying more specific attention to DeFi.”
The locked-in value — the total number of loans on DeFi platforms — was $80.4 billion Monday, down from $86 billion in mid-May, DeFi Pulse data showed, but rose more than 600% from $11. billion in October last year.
There are two types of DeFi crimes: the hack of a DeFi protocol by outsiders, or a “back pull” by insiders, CipherTrace said. A “back pull” occurs when crypto developers abandon a project and walk away with investors’ money.
Most DeFi crimes in 2021 appear to have been carried out by outsiders as hacks, accounting for $361 million, or 76 percent, of all DeFi-related crime. The remaining 24 percent are carpet pullers, which totaled more than $113 million at the end of July.
Last Friday, the US Securities and Exchange Commission said it has charged lender Blockchain Credit Partners and two of its top executives for raising $30 million through allegedly fraudulent offers. The case is the SEC’s first involving securities in the DeFi space.