Decentralized finance technology facilitated more illicit cryptocurrency transactions in the first quarter of 2022 than in any other period, according to a report from Chainalysis Inc.
“DeFi protocols have accounted for an ever-growing share of all funds stolen from cryptocurrency platforms since the beginning of 2020 and lost the vast majority of stolen funds in 2021,” said the report.
DeFi tools are built on the same blockchain technologies used to create cryptocurrencies. Rather than being used as a representation of value, in the DeFi context, blockchains build smart contracts. These contracts are self-executing agreement written in code on a decentralized blockchain network. When tied to cryptocurrency accounts, these smart contracts can execute complicated transactions automatically.
In the first four months of 2022, DeFi protocols were used to facilitate the theft of US$1.68 billion of cryptocurrency assets, more than the total amount stolen during all of 2021, said the report, which noted it’s believed that the majority of cryptocurrency theft is currently sponsored by the North Korean government, which has long maintained antagonistic relationships with other nations’ regulatory bodies.
“Already in 2022, North Korean hackers have had their biggest year yet for cryptocurrency theft at over US$840 million, based entirely on hacks of DeFi protocols. . . . “It’s possible that North Korean hackers are responsible for other hacks, both of DeFi protocols and centralized services, that have yet to be attributed to them definitively.”
The use of DeFi to launder assets isn’t just a North Korean phenomenon. The report noted in 2022, DeFi protocols have become the repository of 69 per cent of all illegal cryptocurrency transactions, up from 19 per cent in 2021.
“One reason for this is that DeFi protocols allow users to trade one type of cryptocurrency for another, which can make it more complicated to track the movement of funds. But, unlike, centralized services, many DeFi protocols provide this ability without taking KYC information from users, making them more attractive to criminals.”