Crypto scammers from around the world got away with a record $14 billion in cryptocurrency in 2021, thanks in large part to the rise of decentralized finance (DeFi) platforms, according to new data from blockchain analytics firm Chainalysis. Losses from crypto-related crime rose 79% from a year earlier, driven by a spike in theft and scams.
The growth of decentralized finance products fueled more scams.
Scamming was the leading cause of cryptocurrency-based crime in 2021, followed by theft, which occurred through hacking cryptocurrency businesses. The firm says that DeFi is a big part of the story for both, in yet another warning for those dabbling in this emerging segment of the crypto industry. “DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike,” Chainalysis revealed in its annual Crypto Crime report. “But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft,” the report added.
DeFi transaction volume grew 912% in 2021.
DeFi is a rapidly growing sector that aims to cut out middlemen, such as banks, from traditional financial transactions, like securing a loan. With DeFi, banks and lawyers are replaced by a programmable piece of code called a smart contract. This contract is written on a public blockchain, and it executes when certain conditions are met, negating the need for a central intermediary.
“The financial system is basically sending money around with various terms and conditions attached to it,” said Joey Krug, Chief Investment Officer at Pantera Capital, a cryptocurrency and blockchain-focused asset manager. DeFi transaction volume grew 912% in 2021, according to Chainalysis stats.