97% of Crypto Hacks Are Against DeFi Projects: Report

Blockchain analytics firm Chainalysis has released a new report focusing on illicit activity on the blockchain, noting that the DeFi protocol is the most popular target for hackers and money laundering has increased in the space over the past two years.

DeFi, a prime target for hackers

Illegal DeFi transactions have been steadily increasing since the DeFi boom in the summer of 2020. Money laundering and DeFi hacking were the two main criminal activities against these protocols. Chainalysis’ report show.

In 2022, a total of $1.7 billion worth of digital assets were stolen by perpetrators, 97% of which came from DeFi protocols. The stash came mainly from two surprising thefts: the $600 million Ronin bridge breach that occurred in late March and the $320 million wormhole attack that took place in February. According to the report, most of the stolen funds, worth more than $840 million in 2022, went to North Korean hackers.

In addition to hacking, money laundering via DeFi has also grown steadily over the past few years, with the DeFi protocol accounting for 69% of crypto-based funds related to criminal activity.

The report attributed the nature of most such protocols, allowing users to exchange one token for another, to the difficulty of tracking the movement of digital assets. Also, the lack of KYC requirements for most DeFi projects makes criminals more attractive.

The report used the case of the Lazarus Group, linked to the infamous North Korea, which laundered $91 million worth of cryptocurrency on multiple protocols last year. The group is said to have exchanged stolen tokens for ETH and BTC, transferred them to accounts on centralized exchanges, and then monetized the assets.

NFT Wash Trading

Another notable result of the report centered on NFT Wash Trading is a form of market manipulation that artificially inflates illiquid assets. Wallets managed by the same entity can trade NFTs in between, giving market participants a false perception that the demand for the asset is higher than it really is.

The report identified examples of manipulation that generated more than 650,000 wETH of trading volume. It stated that the incident occurred on the same platform because the marketplace paid an incentive reward in the form of the platform’s native tokens for NFT transactions.

Users can earn additional tokens by transacting between accounts more often. Meanwhile, NFT collectors can be tricked into believing that the market has more trading activity than it really is.

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