DeFi
DeFi security not ready for cryptocurrency bull run, researchers say – DL News
What you will learn
- The expected cryptocurrency bull market will put the sector’s security to the test, CertiK says in a new report.
- Protocol and security researchers must learn from past mistakes, crypto auditor says.
Cryptocurrency investors are predicting another bull run in 2024, but the sector’s recovery will also test whether the industry has learned from the mistakes that caused $1.8 billion in losses from security breaches last year.
This is according to a new report from smart contract auditing firm CertiK, which warns that the bullish period will be accompanied by new challenges.
“Going forward, the true test of DeFi’s enhanced security protocols lies ahead with the resurgence of a bull market,” the report said.
“The expectation is not to eliminate losses altogether – an unrealistic goal in an industry that prides itself on cutting-edge innovation – but to continue to reduce the correlation between [total value locked] “Companies have experienced significant losses due to hacks and scams. Such a trend would be the clearest indicator of a maturing industry that takes security seriously.”
Total Value Locked (or TVL) is a metric that tracks the amount of cryptocurrency locked in a DeFi protocol’s smart contracts, or across all DeFi protocols running on a given blockchain.
The challenge comes at a crucial time for the cryptocurrency industry. The sector has shown signs of recovery, with its market size doubling to $1.7 trillion over the past year.
The surge is partly due to anticipation of U.S. regulators approving applications for Bitcoin cash exchange-traded funds, which would make it easier for non-crypto natives to invest in the digital asset.
But as the industry recovers from the crypto winter and the scandals that have haunted it, it will need to ensure it has learned the lessons of the past, CertiK suggested.
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“The proof of the pudding will indeed be in the tasting – and for DeFi, the next taste test could define its legacy and ultimate viability,” CertiK wrote.
Cryptocurrencies lost less money to hacks in 2023
The last two years have seen roughly the same number of security incidents: 601 in 2022, according to last year’s CertiK report, and 751 in 2023, according to this year’s report.
However, losses suffered by different crypto organizations have decreased by 51% to over $1.8 billion in 2023, compared to $3.7 billion stolen in 2022.
Funds lost due to cryptocurrency hacks decreased in 2023.
This matches data from DeFi crypto data aggregator DefiLlama, which estimates the total amount stolen in 2023 at $1.7 billion.
While some researchers previously attributed the decline to cryptocurrency prices falling from their 2021 peak, others like TRM Labs and CertiK say that’s only part of the story.
They say factors such as increased policing and increasing sophistication of protocols have played a larger role in the decline in the total value of losses.
“We would like to see this trend continue in a bull market to confirm that overall Web3 security is indeed improving,” said Ronghui Gu, co-founder of CertiK. DL News.
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. He covers DeFi and technology. To share tips or information on articles, please contact him at osato@dlnews.com.