Crypto-related crime has shifted with this year’s market decline, according to a new report from blockchain analytics firm Chainalysis.
The report found that crypto lost from hacks has surged in 2022, with more than $202 million stolen in the past two weeks in addition to the $1.9 billion of investor funds lost through the end of July, a 37% increase from last year.
This rise in crypto hacks comes as the industry’s focused turned to decentralized finance — or DeFi — as the value of cryptocurrencies fell about 50% in the first half of the year.
On the flip side, money lost to scam projects and darknet markets declined along with the broader market.
“It’s not really an option anymore, the industry needs to prioritize cyber security. Every single day it seems like there’s at least one DeFi protocol that [a hacker] has exploited,” said Kim Grauer, Chainalysis’ director of research.
In particular, crypto bridges that allow users to transfer cryptocurrencies from one blockchain to another have shown high rates of security vulnerability and targeting by hackers, accounting for the bulk of major robberies.
Notable bridge hacks have included Nomad ($190 million) earlier this month, Harmony ($100 million) in June, Ronin ($625 million) during March, and Wormhole ($326 million) at the beginning of February.
Of the $1.9 billion stolen from DeFi protocols this year, hackers affiliated with North Korea such as the Lazarus Group, are estimated to be responsible for more than half of the total.
Grauer suggests more software code audits, industry standardization for how projects manage and hold funds in custody, and better investor education and disclosures to improve due diligence processes could help shore up these vulnerabilities for the industry.
“Its easy to forget, but this is where we were to a less extreme extent for centralized exchange hacks a few years ago. It felt like an insurmountable industry problem,” Grauer explained.
Changpeng Zhao, founder and CEO of the major crypto exchange Binance, has framed rising DeFi hacks as growing pains for the emerging segment, telling Yahoo Finance two weeks ago his company invests “billions of dollars” into security.
Additionally, Zhao said more crypto regulation could “help to reduce the occurrence of [hacks] and also introduce more transparency into the market.”
Chainalysis’ report also shows the value received by crypto scam projects and darknet markets dove between January and July.
Illicit volumes to darknet marketplaces fell by 43% compared to this time last year. Much of that decline is linked to the April 5 shutdown of major illicit venue, Hyrdra marketplace.
With a high correlation to the downturn in crypto asset prices according to the report, scams dropped to $1.6 billion, down 65%.
Industry sources also told Yahoo Finance the change also likely comes from how the market downturn has concentrated remaining investor interest into better-vetted projects.
“We’re starting to see more development backed by major companies like Binance Labs and Avalanche Labs or venture firms, which means its [DeFi project] going to have gone through a longer review process by several skilled teams,” said LP, the pseudonymous founder and CEO of DeFi protocol rating app, RugDoc.io.
As a result, LP said the recent surge in hacking is also following the trend for higher expertise with more resources to back them. “While volume for petty scams is lower, now you’re seeing a handful of very elite, sometimes state sponsored, hacking teams who can take down large projects for incredible sums of money,” LP said.
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