Decentralized finance, known as DeFi, may not be “decentralized” enough as attackers exploit central vulnerabilities to steal billions of dollars from users in 2021, according to research by blockchain security firm CertiK.
In a new State of DeFi Security Report 2021, CertiK researchers state that “centralization issues have been the most common attack vector” in decentralized finance. The blockchain security company reported 44 DeFi hacks totaling $1.3 billion in lost funds in 2021. This is more than $500 million more than in 2021.
“This underscores the importance of decentralization and underscores the fact that many projects still need to be undertaken to achieve this goal,” Sirtek said, adding:
“Decentralization goes against the spirit of DeFi and poses significant security risks. Some flaws can be exploited by hackers and intruders alike.”
Research by ImmuneFi found that the value lost due to DeFi hacking and related fraud exceeded $10 billion over the past year, and also revealed significant discrepancies in how exploits are classified and tracked. However, most studies of this case seem to agree that the number of security exploits targeting DeFi projects has risen exponentially.
While the use of DeFi has undermined the legitimacy of cryptocurrency markets in the eyes of traditional investors and legacy financial systems, CertiK offered a weight loss: losses in 2021 were only 0.05% of the total cryptocurrency market capitalization, down 17% from the previous year.
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According to CoinGecko data, the cryptocurrency market peaked north of $3 trillion in November 2021, down from just under $800 billion earlier in the year. DeFi has become a major catalyst for cryptocurrency growth, with the sector’s total value growing from less than $20 billion in early 2021 to a record high of nearly $260 billion in December. Closed Total Value, also known as TVL, refers to the assets that are currently being invested in DeFi protocols.
Total TVL is down from an all-time high but still over $200 billion. Source: DeFi Lama
CertiK cited the growing popularity of the Binance Smart Chain (BSC) as one of the main reasons for Defi’s success. Between January and December 2021, TVL BSC grew from $62 million to $21 billion – an increase of 31,000%.
The demand for CertiK’s blockchain security services appears to be on the rise as more projects don’t seem to fall prey to fraud and exploitation. In 2021, the company audited a total of 1,737 projects. According to a Cointelegraph report, CertiK is nearing unicorn status after receiving an $80 million B2 Series investment that was completed at the end of November 2021.