Despite the rise of decentralized finance (DeFi), crypto investors seem to prefer centralized exchanges (CEXs) over DeFi instruments, according to a new report.
It is more appropriate for crypto investors to hold their assets in CEX because decentralized exchanges are still more vulnerable to hacking threats. This was stated in a joint report by Chainalysis and the Bitfinex exchange, published on October 13.
According to the study, the risk of CEX-related hacks has decreased significantly in recent years, while many DeFi platforms are witnessing more and more hacks.
According to Chainalysis, the total value stolen from central crypto platforms has fallen by 58% from a peak of $972 in 2018 to $413 in 2021. The number of CEX hacks continues to decline this year as $80 million has been stolen from central crypto platforms in 2022.
In contrast, DeFi hacks are booming as DeFi-related hacks now account for 96% of theft losses, already worth $2.2 billion by 2022.
In addition, bitcoin at the end of the year (
Balances on centralized platforms remain close to all-time highs in 2022 despite the ongoing crypto winter. Since the beginning of the year, bitcoin balances on central exchanges have reached 6.9 million BTC, up 11% from 6.2 million BTC three years ago, according to Chainalysis.
It is important to note that the study was limited to services and protocols, without taking into account the use of non-custodial or personal wallets. “We hope to publish research on personal portfolios in the near future,” a spokesperson for the joint report said.
Kim Grauer, Director of Research at Chainalysis, points out that CEXs are no longer prime targets for hackers, as they were in the early days of cryptocurrencies, because these platforms have been able to significantly improve security and compliance. Many CEX centers specifically have rigorously implemented more secure operating systems, such as distributed denial-of-service protection standards and revised third-party security checks.
“During our research, we found that many of the major cryptocurrencies have been surprisingly stable this year despite the market turmoil,” said Grauer, adding:
“Hodlers are holding, and if anything, we have seen an increase in the accumulation of cryptocurrencies by long-term holders. Most of this cryptocurrency is stored on centralized exchanges.”
Paolo Arduino, CTO at Bitfinex, also noted the increased flexibility of centralized exchanges for hackers. Arduino told Cointelegraph that he encourages investors to use non-custodial hardware wallets to better protect their money, saying:
“My advice to those who own bitcoins and cryptocurrencies, always keep them in cold storage […]. However, CEX is becoming a safer place to store your cryptocurrencies with 2FA and stronger security measures.”
Despite DeFi’s massive vulnerability to hacking at the moment, Ardoino still sees DeFi as an interesting trend that could contribute significantly to the cryptocurrency’s overall rally.
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“The growth of DeFi is comparable to the growth of natural systems in nature,” said the CTO, adding that DeFi “will inevitably grow and thrive as technology advances and new communities are drawn into space.” He emphasized that security remains an “ongoing issue for DeFi protocols.”
The total value of DeFi-related smart contracts peaked at $180 billion last November, and dropped to $53 billion. Although the DeFi industry has shrunk this year due to the ongoing general winter for cryptocurrencies, the sector is still experiencing a significant number of hacks.
TempleDAO, a revenue-based DeFi protocol, was one of the latest platforms to fall victim to DeFi exploitation, losing more than $2.3 million in a hack on October 11. In September, cryptocurrency firm Wintermute lost about $160 million due to a DeFi hack. , while its central financial business was not affected.