If you're considering investing in decentralized finance (DeFi), the FBI asks you to think twice, as cybercriminals stole $1300 billion worth of cryptocurrency in just three months this year.
Citing research (opens in a new tab) by US blockchain analytics firm Chainalysis, the Bureau noted that nearly 97% of this crypto was stolen from DeFi platforms.
DeFi platforms offer financial instruments without relying on intermediaries such as brokerage houses, exchanges or banks by using smart contracts on a blockchain.
How serious is the problem?
The scale of the problem is growing rapidly, with the $1300 billion stolen representing a 72% increase from the 2021 total and a 30% increase from 2020 according to Chainalysis.
In addition to the investigation, the FBI has highlighted some trends that it has noticed in its own investigations.
These included cybercriminals who initiated a "flash loan" that triggered an exploit in a DeFi platform's smart contracts, causing investors and project developers to lose approximately $3 million worth of cryptocurrency after the flight.
It also noted hackers exploiting a signature verification vulnerability in a DeFi platform's token bridge to remove all investments from the platform, as well as a case where hackers manipulated cryptocurrency pairs by exploiting a series of vulnerabilities, before making leveraged transactions.
DeFi threats
If that hasn't completely dissuaded you from investing in DeFi, the FBI has some helpful tips to help you stay safe.
These include researching DeFi platforms, protocols, and smart contracts before investing and being aware of the specific risks associated with DeFi investments.
The FBI also recommended making sure the DeFi investment platform has completed one or more code audits by independent auditors, as well as being wary of DeFi investment pools with extremely limited time limits to join and rapid deployment of smart contracts. .
In addition, the FBI noted the potential risk posed by crowdsourced solutions in terms of identifying and fixing vulnerabilities, as open source repositories can allow unrestricted access by people with "nefarious intent."
While DeFi may still be a risky business for consumers, the risks it poses to the broader economic system may be limited, at least for now.
In a recent report (opens in a new tab), the Bank of England's Financial Policy Committee stated that "direct risks to the stability of the UK financial system from crypto assets and DeFi are currently limited."
That is not to say that the rise of DeFi cannot affect the rest of the financial system in the future.
The report goes on to say that “if the pace of growth seen in recent years continues, and as these assets become more interconnected with the broader financial system, crypto assets and DeFi will pose risks to financial stability.”