THE value of funds lost to cryptocurrency hacks has soared this year as decentralised-finance protocols have become an easy target for attackers, a report from blockchain analysis firm Chainalysis showed.
Around US$1.9 billion worth of digital tokens has been stolen in hacks this year through July, up 58 per cent from the same period of 2021, according to Chainalysis.
"This trend doesn't appear set to reverse any time soon, with a US$190 million hack of cross-chain bridge Nomad and US$5 million hack of several Solana wallets already occurring in the first week of August," the report said.
DeFi protocols, especially cross-chain bridges used to transfer tokens across blockchains, have emerged as 1 of crypto's weakest links after several large hacks this year. Because such protocols rely on open-source code, criminals can easily find bugs or other vulnerabilities to exploit, Chainalysis said.
"It's possible that protocols' incentives to reach the market and grow quickly lead to lapses in security best practices," according to the report.
In 1 ominous sign, criminal crypto activity appears to be more resilient than the wider digital asset market to tumbling cryptocurrency prices. The number of transactions Chainalysis labelled as illicit fell 15 per cent through July from a year earlier, while legitimate transactions dropped at more than double that pace, according to the report.
Axie Infinity's Ronin bridge lost about US$600 million to hackers in March and Harmony's Horizon bridge was drained of US$100 million in June.
DeFi protocols have also become a frequent target of state-sponsored hacking groups. North Korea-affiliated groups have stolen approximately US$1 billion of cryptocurrency from DeFi protocols so far this year, Chainalysis estimates.
While hacks continue to be a major threat, Chainalysis noted that illicit activity in other areas of crypto has seen a significant drop. Crypto-related scams garnered US$1.6 billion so far in 2022, 65 per cent less than a year earlier, according to the report. Revenue on so-called darknet marketplaces is down 43 per cent this year, mainly due to the crackdown on the Hydra marketplace in April. BLOOMBERG