Decentralised finance (DeFi) is the “next major threat vector for fraud and money laundering”, accounting for half of crypto thefts in 2020, according to a new report.
Overall losses from cryptocurrency theft, hacks, and fraud fell 57% last year to $1.9 billion, according to blockchain intelligence firm CipherTrace’s Cryptocurrency Crime and Anti-Money Laundering Report.
Even though the number of crimes was similar, the average amount stolen was much lower due to criminals switching to smaller DeFi thefts.
According to CipherTrace, as Virtual Asset Services Providers adopt stronger security measures and more Know Your Customer regulatory requirements are implemented, criminals are instead setting their sights on “greener decentralised finance services”. DeFI sites run on open infrastructure, with algorithms setting rates in real time based on supply and demand. They are exempt from regulatory requirements including Know Your Customer rules.
“2020 was overrun by dozens of DeFi related hacks and scams, which were much smaller in size” the report said.
“Half of all 2020 crypto hacks were of DeFi protocols—a pattern that was virtually negligible in all prior years—and nearly 99% of major fraud volume in the second half of 2020 stemmed from DeFi protocols performing “rug pulls” and other exit scams.”