The decentralized finance market is crowded with projects that seem to promise strong investment prospects, yet lack the necessary audits that confirm their trustworthiness and reliability.
Indeed, throughout the crypto industry's 13+ years of history, there has been no shortage of fraudulent projects.
Generally, they lure victims in with promises of massive profits only to scam them out of their hard-earned funds.
Since the 2020 DeFi boom, this sector has been no stranger to fraud and cybercrime.
In fact, according to a Chainalysis report, decentralized finance protocols accounted for $2.2 billion out of the total of $3.2 billion worth of cryptocurrency stolen in 2021 while featuring a nearly 2,000% year-over-year growth in value received from illicit addresses.
At the same time, scamming revenue increased by 82% to $7.8 billion in 2021, $2.8 billion of which came from rug pulls, a type of fraud mostly associated with fake DeFi projects.
For these reasons, it is always crucial to do your own research and carefully examine a project before you make a choice to invest any money into it.
Crypto Users Are Becoming More Vigilant
While the DeFi sector and the broader cryptocurrency space have experienced negative trends throughout 2021 in terms of fraud, this year, we have finally seen developments that could have a great impact on the future of the market.
Witnessing high-profile incidents, such as the $12 million Squid Game Token and the $60 million AnubisDAO rug pulls, have led to better education in terms of how to DYOR (do your own research).
A few years ago, it was enough to shout a scam project's name on stage to lure victims into a $2.4 billion Ponzi Scheme or raise massive amounts of money without a solid concept or a working product through Initial Coin Offerings (ICOs).
Fortunately, it's not as easy to trick people nowadays. Crypto users have become smarter, forcing malicious parties to do some extra legwork to steal money.
Last year, there were more rug pull incidents as the number of cryptocurrency users grew, and new joiners were not particularly experienced in this field.
Presently, since many platforms, including ours, talk more about different types of scams and how to tackle them, people have become better educated.
I believe proper education is especially crucial in crypto. It not only helps bust some myths (like how Bitcoin is a Ponzi scheme or resembles the Dutch tulip mania) and attract new users but also helps newcomers stay safe by showing them how to do their own research, manage risks, and make mindful investment decisions.
More Projects Are Prioritizing Security
At the same time, owners of crypto and DeFi projects are paying greater attention to their security. In fact, at HashEx, we have seen a threefold increase in the number of audits conducted by projects between Q1 2021 and Q1 2022.
And considering how a small mistake in the code can lead to grave consequences, independent audits performed by third-party industry professionals have been proving extremely efficient in assessing the risks of smart contracts as well as identifying potential vulnerabilities and the ways to fix them.
As a result, the overall security within both the DeFi space and the broader crypto market has improved.
Since all classic exploits have been patched with frameworks, fulfilling attacks now takes more time and effort. Hackers have to look for errors in the business logic, third-party services, and find other ingenious ways to strike at projects.
Consequently, the same attack a criminal could initiate in one hour a few years ago now takes months to prepare against a single project. And there is still no guarantee that it will succeed.
Criminals Have a Harder Time in Crypto Than Ever
Since its early days, the crypto industry has been highly targeted by hackers due to its relative lack of clear-cut regulation and punishment measures.
DeFi, NFT, and other digital asset projects don't have access to the guarantees and safeguards like, for example, in the banking sector, where serious criminal prosecution is involved after security incidents.
Nevertheless, we are definitely moving in that direction.
With developers paying greater attention to the safety of their clients' funds and a greater number of users doing their own due diligence before making an investment, crypto will eventually reach the same standards of security as modern banks in the near future.