The limitations to the continuous growth of decentralized finance (DeFi), and blockchain in general, dramatically hinges on the scams and hacks plaguing the industry. Hence, there has been a tug-of-war between the beautiful potential of the application of blockchain technology and the harmful actions of hacks growing native to DeFi.
The chart below better represents the relationship identified above:
Comparing both charts side by side, we can infer that hacks and exploitations of the DeFi industry grew as more people became familiar with the concept. This is manifested in Elliptic’s report of over 600% increase in funds stolen by hacks from all projects and protocols integrated with DeFi in 2021 compared to 2020.
However, several factors can excuse the numbers in 2020, DeFi was still only more than just an idea, and the Total Value Locked (TVL) in smart contracts was not as tempting. But what if we argue that DeFi projects and protocols are better equipped now to make life miserable for hackers? Would that change the narrative?
Some of the cracks in security exploited by malicious actors have ranged from “easy” to more difficult hacks that needed a more sophisticated approach. Hackers usually go for more straightforward jobs because the latter is costly in time and resources. This is why the concept of auditing is nearly mandatory for projects, and protocols without audit reports are usually not taken seriously. See a chart below to get an idea of the disparity in percentages of audited and non-audited protocols hacked.
2021 has been a pivotal year for the world economy. It marks the recovery of factors of production and businesses from the pandemic and the impressive growth indices of alternative economies (like DeFi) and products (NFTs), which will defy the norm. It has also been the year that the investors have been robbed the most since the history of DeFi.
According to this report by CipherTrace released in May, DeFi related hacks make up around 76% of major hacks that happened this year. As volume and numbers of hacks in other spaces, not DeFi but bordering blockchain, decreases, DeFi has been on the reverse, beating the hack record of the previous year. The chart below paints the picture quite accurately.
Lossless’ Vision and How We Are Going About It
With over USD 12 billion in tokens lost to hackers in 2021 alone, a sum substantial enough to contribute to the growth of the industry and the world’s economy, engineers and financial gurus at Lossless have been crafting solutions to reduce the amount in the coming fiscal years.
To remain unwavering in our intentions for the DeFi space, we have built some sort of metaverse in our imaginations to match our vision of a trusted and safe DeFi ecosystem. We intend to attain this vision via a three-pronged approach: limiting system hacks, closing up exploitable gaps in project security, and educating the public to prevent falling to manipulative and social engineering interactions. If this is achieved, the growth of DeFi would be mammoth.
The first two approaches are a bit technical; good reasons to act on projects more directly. We have been able to piece together our expertise in asset security and extensive research to identify some of the entry points of hacks in the DeFi space. One of the ways Lossless has tackled the insecurity problem is ensuring projects are LSS protocol compliant.
For a project to be LSS compliant, the Lossless code will have to be integrated into the project’s token by its creators. This will empower Lossless with the capacity to freeze transactions that pass as fraudulent according to certain criteria. Frozen tokens can be reversed to the original wallet addresses via a two-step process.
The first step involves individuals spotting hacks and fraudulent transactions, then freezing them. The second consists of the hack’s confirmation by the token creators, Lossless team, and Lossless committee, after which there is a permanent transaction freeze, analysis, and fund reversal if a hack is confirmed.
Not to undermine any of the approaches contained in our vision, we think the third step, education of the masses, is critical to the structure we have built. Through targeted and strategic content, we have been able to educate our community and the general public on the best practices in the crypto industry, giving them convincing reasons why they should adhere to them. Also, knowledge is vital in identifying hacks and fraudulent transactions when they see one. We will continue doing so.
Amounts that can easily pass for countries’ yearly budgets have been lost to hackers in 2021. Interestingly enough, the ever-changing and competitive DeFi space is yet to contain the damage. As the situation grows more worrisome and threatens the impressive advancement, the space has enjoyed so far, Lossless steps in to lead the vanguard of arguably blockchain’s most important application.
To achieve our goals and more, we have been working endlessly utilizing all three channels. This is to ensure that even a bang average result in any one approach is complemented by the others. Do well to stay updated with our blog posts and be instrumental in our fight against hacks and exploits.
Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from our known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.
Our protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Our solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.