The DeFi market was thought safe because to blockchain technology, however hacking accusations surfaced during the 2020 pandemic
Since the beginning of the new year, the number of attacks has increased significantly and people have lost millions of dollars to them. Statistics show that more than 1.5 billion have been heisted up till now which is an alarming situation.
Why DeFi Is Attracting Hackers?
For almost a decade DeFi (decentralized finance) was considered as completely safe and reliable but it is a point to ponder why the tide has turned now? Hackers must have been burning midnight oil to hack into DeFi currencies. The thing which has influenced them to attack DeFi is the supreme amount of money that these platform have in reserve. In other words, the rewards are very high for those hackers who succeed in their immoral ambitions.
The other possible reason might be the fact that DeFi protocol codes are open sourced. An open source program is the one which is available to view for public and this feature places DeFi at a higher risk of getting hacked.
Another major point which has jeopardized the DeFi security is the conjugation of ecosystems. To provide ameliorated user experience, DeFi ecosystems are mostly interconnected which makes it easier for hackers to do their job. It also makes room for them to steal and vanish because they can swiftly transfer the funds.
A recent Chainanalysis report has suggested that around 40 percent of the hacking attacks are due to security breaches and negligence from the developers. Hackers keep searching for coding errors through bug tracker tools and once they find a faulty code, they begin the heist.
Flash loan attacks are also becoming common. Flash loans are DeFi loans that can be received instantaneously but are not secure of course. During these attacks, lending protocols are targeted and created fake prices that allow hackers to buy crypto at cheap price.
How Stolen Funds Return In The Market
In some of the case like flash loan attacks, the funds remain in the legal channel as no suspicions arise due to the nature of the heist. In other types of attacks, hackers launder stolen funds through accomplice exchanges. Regulatory bodies should enforce strict implementation of security policies like KYC (Know Your customer) and AML (Anti Money Laundering to stop illegal transfer of DeFi but at the present moment, only some popular exchanges such as Binance and Kraken have implemented these policies in a productive way.
CEO of Injective Labs while talking to Cointelegraph seemed very optimistic in this regard as he opined that the situation is getting better now with the improvisation of modern security standards. He said that his company, Injective Labs, is using application-centric security model which stops the re-entry of stolen funds.
DeFi market is under attack at the moment undoubtedly but the authorities have shown greater interest in thwarting these attacks and soon they will stop as every cloud has a silver lining.