DeFi has already spurred a revolutionary generation of new financial institutions to be created. With its current momentum, the DeFi ecosystem is en route to build an autonomous financial infrastructure free of costs and waste that plague traditional financial services.
Based on smart contracts that run on the Ethereum blockchain, most DeFi projects issue a token that offers benefits to its holders. In many cases, the increased adoption of DeFi products derives from the purchase of these tokens. As of April 2021, the total value locked in DeFi tokens has skyrocketed to $100B — which means the DeFi token market grew more than 50 times in less than a year.
While DeFi showcased staggering growth, many projects have become prone to being exploited and hacked because of Ethereum’s smart contract turing-completeness. In 2020, more than 122 major crypto hacks occurred and a total of $3.8B has been stolen. In turn, the market began to question the future of DeFi tokens as an asset class due to rising safety concerns.
Token creators in crypto and, subsequently, DeFi had to undergo a transition in recent years: following the market crash of 2018, tokens with well-defined, more traditional means of value capture seem to have better persevered the challenging bear market. With the current security concerns, token creators are again challenged with a decision — to search for capable safety solutions or be exposed to the increasing volume of hacks.
Important Lessons from Tether
While hackers successfully get away with stealing DeFi tokens worth millions of dollars, this could hardly be possible with Tether. This stablecoin is able to freeze and destroy USDT, thereby recovering them in the cases of fraud or unintentional payments.
If you lose access or send your funds to the wrong address, Tether may exercise its function to reverse USDT transactions to recover the funds. To retrieve the tokens, Tether reaches out to the user and confirms that the funds were lost. The company then uses a function in Tether’s smart contracts to blacklist the ETH addresses that the tokens were directed to.
With similar functions to mitigate the effects of a hack, DeFi tokens would be able to drastically improve the holders’ trust. Conversely, without finding a way to integrate such capabilities, the wider adoption of DeFi is hardly possible as the risk to lose funds remains high.
However, the described Tether’s transaction stopping mechanism is too centralized and would work directly against the core fundamentals of DeFi platforms. Therefore, we need to merge the best practices of both worlds to create a solution that both promotes security and does not compromise the non-custodial nature of DeFi.
Lossless: the Permanent Lifeguard of Your Token
Lossless protocol is the first tool that detects and stops the hacks to help affected entities retrieve their stolen funds. At its core, this protocol is a piece of code that token creators insert into their tokens.
By using Lossless, token creators will empower the community of white hat hackers and security experts to have the tool that allows stopping and reverting any fraudulent transactions based on a set of fraud identification parameters. Hacks or unusual activities will be identified by listening for on-chain events, checking for unusual token activity (such as large transactions, liquidity pulls, etc.), and third party reports (such as public reports).
After the hack is identified and frozen, the decentralised Lossless Decision Making Body (consisting of key public figures, token creators, and LSS token holders), decides whether to retrieve the frozen transaction. With that, the Lossless Protocol completely transforms the Tether model by making it fully transparent and decentralised: allowing anyone to initiate the transaction freezing, while independent entities decide the ultimate fate of the transaction.
Benefits of Implementing Lossless
There is infinite upside to implementing Lossless into your token — and the upside will not only alleviate the risks of a specific DeFi project at hand, but also help the entire ecosystem move forward.
For starters, there is no cost of installing the Lossless protocol for token creators nor holders. The compensation structure integrates a fee of 7% only after the hack is mitigated and the funds are successfully retrieved. A fee of 7% will then be used to compensate those responsible for finding the hack and successfully alleviating its consequences.
Also, integrating Lossless is a way to reassure the holders of your token that the safety of their funds is important to you. While the holders bring value to the project by acquiring, staking, or otherwise using your issued tokens, the hack mitigation tool is a way you can protect their interests. With Lossless becoming a new hack mitigation standard in DeFi, reducing the likelihood of your holders’ funds being stolen is the easiest way to increase the trust in your project and build mutual relationships with your community.
Despite the buzz around DeFi, token creators have to simultaneously think about the future of DeFi and acknowledge that mainstream adoption is impossible without ensuring safety in the space. The importance of new projects will also be defined by DeFi’s brand: the ability of projects to keep their reputation intact across an ever-changing and extremely volatile risk surface.
Before DeFi can move from its novice stage into a full-blown financial market shaper, the security problem has to be solved once and for all. At Lossless, we foresee partnerships and integrations with existing and upcoming token creators to be our main priority going forward. Together with projects adopting the Lossless protocol, we will achieve the new age of security in DeFi.
What is Lossless?
Lossless is the world’s first crypto hack mitigation tool.
Implemented into the token, the Lossless protocol allows to freeze and retrieve any fraudulent transaction based on a set of hack identification parameters.
Lossless aims to create a trusted and safe DeFi ecosystem with minimized losses from hacks, exploits or social engineering.
Enter Lossless DeFi: