DeFi is heralded as the upcoming evolution of the world of finance. The promising financial project is held back from reaching mainstream relevance due to frequent hacking attempts. Rising crypto adoption across the globe is contributing to blockchain’s true potential being acknowledged in different industries. Decentralized finance is one of the most promising applications of blockchain technology.
Research indicates the DeFi market gathered $200 million of liquidity in smart contracts in 2021 alone. If the capital is considered a primary investment, the market can become a highly profitable possession. There are not enough industries that can show off such huge investments. However, like any emerging market, there are issues, and one of the significant backlogs of DeFi is incompetent blockchain developers.
Ramifications of DeFi Attacks And Its Effect in The Crypto Industry
While DeFi was on an exponential trajectory upwards, the crypto market reached a peak of $3 trillion opening doors for the hackers to grab the opportunity of attacking the DeFi platforms. Only within the first five months of 2022, $1.57 billion are already stolen by cybercriminals. The attacks are getting worse and the developers are yet to find a solution.
Notable examples of DeFi attacks in 2022 include the Wormhole network($320 million), Ronin Bridge($650 million), and the Beanstalk Farms($180 million). All three attacks took place due to exposure to cross-chain bridges, flash loan protocols, and smart contracts. Digital theft has become a threat to crypto enthusiasts.Nations across the world are imposing regulations on the still-developing industry to prevent this menace.
One of the main reasons behind frequent attacks was pointed out by blockchain analysts. Since the blockchain technology is transparent, hackers can access the code and view the vulnerable spots and manipulate the protocol. Focusing toward DeFi protocols, the attacks are becoming more frequent and intense in 2022. Recent UN reports suggest crypto assets stolen by North Korean hackers were used to fund missile and nuclear programs causing concern to international security.
Also Read: DeFi Resilience: The Challenges in Decentralization
How Did The DeFi Hacks Shift in 2022?
Between 2021 and 2022, $1 billion worth was hacked into over a hundred projects due to the inefficiency of the developers. Around $500 million were hacked due to coding issues, and $50 million were exploited due to third-party protocols and business logic issues. One of the actively used lending protocols is the callback function. It helps to check the balance of the users through smart contracts before providing a loan.
Since the entire process is conducted within one transaction it gives an ideal opportunity for the hackers to embezzle money from smart contracts. The hackers fool smart contracts by returning the callback function to start the procedure from the beginning. Since the transaction does not confirm the blockchain technology, the system provided another loan for a similar collateral balance. Although developers make new plans to provide it with a solution, many projects still fall prey to it.
DeFi project teams with low skills borrow code architecture from open-source DeFi projects to start their smart contract. This is usually taken from large user database projects that are built with high security. However, sometimes to add extra features, these projects borrow codes without changing the original base. This damages the logic of smart contracts that developers do not identify.
In similar ways, hackers stole nineteen million dollars from a DeFi platform in 2021. The main notion of flash loan attacks is that you do not require to have collateral to borrow funds as the parity is ensured that the loan is taken and returned via one deal with interest.
Also Read: Prevent DeFi Crypto Scams Offering High APY By Crypto Knowledge & Understanding
How to Defend DeFi Attacks?
One of the basics of keeping your DeFi platform protected is to hire efficient blockchain developers. There are many blockchain development companies that provide a team of experts to build decentralized applications. Moreover, many professional companies use safe code libraries for the development of DeFi platforms.
Sometimes, the safest option is to avoid the newest code bases and use less up-to-date libraries. Another important task that every developer must do is testing before deployment. It is important to protect the private keys that are used for call functions of smart contracts with limited access.
In Conclusion
One of the crucial components of keeping the blockchain-based DeFi platforms secure and reliable is education. Any company looking for developers in the DeFi platform must look into their skillset and education regarding the system before hiring them. This will ensure a better DeFi platform for the users and keep the transactions safe from hackers.
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