Report: 97% Of Crypto Hacks Were Against DeFi Projects

Chainalysis, a blockchain analyst firm, published a new report on illicit activities on blockchains. It noted that DeFi protocols are the most targeted by hackers and that money laundering has increased in this space in the last two years.

DeFi as Hackers’ Primary Target

Illicit DeFi transactions have increased steadily since the DeFi Boom, which occurred in the summer 2020. Money laundering and DeFi hacking have been the two major criminal activities on such protocols, Chainalysis’ report shows.

The perpetrators stole $1.7 billion in digital assets, 97% of which were from DeFi protocols. Two alarming thefts were responsible for the bulk of the stash: the $600M Ronin bridge attack at the end March and the $320M Wormhole attack in February. The report outlined that, as of 2022, most stolen funds – over $840M – have gone to hackers with ties to North Korea.

DeFi protocols are now able to take in 69% crypto-based funds that are associated with criminal activities.

The report attributed the nature of most such protocols – allowing users to trade one token for another – to the difficulty of tracking the movement of digital assets. Criminals have also found them more attractive due to the absence of KYC requirements for many DeFi projects.

This report used the Lazarus Group, a notorious North Korean-linked group that allegedly laundered $91million worth of cryptocurrency last year through several protocols. The group allegedly exchanged stolen tokens to ETH, BTC, transferred them into accounts on centralized trading platforms, and then cashed out the assets.

NFT Wash Trading

Another notable outtake in the report centered on NFT Wash Trading – a form of market manipulation that artificially inflates an illiquid asset. The same entity can control multiple wallets and trade NFTs between them, creating a false impression that there is more demand for the asset than it actually is.

One example was identified that generated 650,000 wETH through manipulation transactions. It stated that the incidents occurred on the same platform because the marketplace paid out incentive rewards for trading NFTs in the form of the platform’s native token.

By simply transacting more frequently between accounts, users could earn additional tokens. NFT collectors might be tricked into believing that the marketplace has more transaction activities than it actually does.

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