DeFi Crime Data Review and Tips on Digital Asset Security

6 min read
Defi Crime Data Review And Tips On Digital Asset Security

Reviewing the crypto crime report of 2022 and listing the prominent crimes in DeFi space.

Chainalysis, the blockchain data platform, shared their latest Crypto Crime Report for 2022, revealing surprising information about the state of crime in the digital finance industry.

As a DeFi protocol that values digital asset security and protection, we wanted to share our insights on bad actors in the DeFi space, along with tips on how investors and owners can keep their digital assets safe from these crypto exploits.

Understanding how to avoid and reduce risks in the crypto industry along with digital asset protection and security are just as important conversations as those in DeFi development, usage growth, and adoption.

How Crime Piggybacks on DeFi growth#

Evidently, adoption and usage of DeFi exponentially grow at an even faster rate. According to Chainalysis, from all the cryptocurrencies they’ve tracked, cryptocurrency’s total transaction volume grew to over $15 trillion in 2021 alone, 5 times more than in 2020. However, its massive growth has motivated criminals to take advantage of cryptocurrencies and decentralised finance.

Crypto crime hit a different kind of all-time high last year. In 2021, suspected illicit addresses have taken around $14 billion sourced from illegal activities, $7.8 billion more than in 2020. Riding on more than just the hype, cybercriminals piggyback on DeFi’s state of innovation and convenient functionality — exploiting people new to the market and the anonymity of decentralisation.

Three types of crypto crimes and exploits are prominent in the DeFi space: stolen funds, money laundering, and scams. Let’s go over each crypto crime and find out how one can get protected against them.

Stolen Funds#

The majority of crypto crime comes from cryptocurrency and digital asset theft. Around $3.2 billion worth of cryptocurrency was stolen in 2021, 5 times more than was stolen in 2020. An estimated $2.2 billion of those stolen funds were taken from DeFi protocols. There is an increasing number of thefts associated with DeFi projects, a trend consistent with Chainalysis’ 2021 Crypto Crime report.

It’s unfortunate and alarming that amidst the expansion of DeFi functionality and its positive impact, the prevalence of stolen cryptocurrency funds continues. Because most of DeFi is built on emerging tech, cyber thieves and hackers exploit smart contract vulnerabilities to steal funds from protocols.

Let’s explore 2 easy ways a DeFi protocol user and/or investor can protect their digital assets from getting stolen.

Starting off with prevention and the classic yet evergreen crypto market advice: always do your own research. Since most cyber theft comes from the exploitation of vulnerabilities of smart contract codes, it’s important to assess whether or not a protocol is giving priority to cybersecurity and continuously developing smarter and less vulnerable smart contracts.

However, if all else fails, parametric covers can give not only users and investors but also project founders a reliable way to mitigate crypto market risks. In the case of a DeFi protocol getting hacked, parametric cover pools can ensure that policyholders can reduce the impact of risk on their finances, through guaranteed claims payouts crowdfunded by supporters and liquidity providers of the DeFi project.

Neptune Mutual gives users and investors a secure and convenient way to get protected with parametric covers. It also provides projects the chance to create crowdfunded cover pools. The beauty of parametric cover is its ability to eliminate the need for individual claims assessments by assessing the incident alone. Making claims less of a hassle for the investor. And making investor protection easier for the cover creator — the DeFi protocol or crypto platform.

Money Laundering#

Where there are stolen funds, there’s most likely laundered money. Usage of DeFi protocols saw the most growth in the laundering of illegally-sourced funds at 1,964%. Fortunately, money laundering takes a lesser proportion in the overall use of DeFi protocols than it did in 2020.

DeFi projects and protocols can protect their platforms from being channels for illicit money laundering activities by using data analytics that identify suspicious patterns to help weed out potential money launderers. Constant communication with authorities and communities can help projects stay informed about common MOs and transactions done by suspected cybercriminals.


Many scams go on in the crypto market especially since most of the technology it’s built upon is relatively new.

In 2021, scams have stolen over $7.8 billion of cryptocurrency from victims. Almost $3 billion of this comes from rug pulls, a scamming exploit used by developers who pitch seemingly legitimate crypto projects and DeFi protocols. Rug pull scammers use the promise of growth potential from their barely-developed or half-baked projects to con investors into funding their project. A form of fraud, they then abandon the project and take off with the investment capital.

So, how can one avoid crypto scams like rug pulls?

One easy way to spot a crypto scam early on is to find out if the project has a code audit. A code audit acts as a verification process led by a reputable third-party organisation that inspects the DeFi project’s smart contract code and confirms the validity of the smart contract’s programming and the lack of any exploit that would give the developers a way to take off with investor funds.

Code audits can help both retail and institutional investors spot potentially fraudulent DeFi projects, along with helping them avoid the risk of getting scammed.

Crime Doesn’t Pay — Even in Crypto#

It never does. Authorities all over the world are on a widespread crackdown on digital crime. Amidst the increasing number of illicit crypto activities, more and more cybercriminals are also getting discovered and apprehended. As a matter of fact, legitimate DeFi usage outpaces usage in crypto criminal activity. It is now much lower than ever before.

Reputable crypto institutions, investors, and communities like Fenbushi Capital, Animoca, Coinbase, OKEx, and Neptune Mutual are also working together towards bolstering crime prevention and risk mitigation in the DeFi industry.

Criminal whale addresses that hold around $10 billion worth of cryptocurrency are also being tracked and observed. These addresses have also been identified as related to the darknet economy and scamming exploits. This kind of information will be crucial to the success of the global crypto crime crackdown.


DeFi is a hotspot for innovation. It continues to be an exciting aspect of the blockchain industry. Its rapid growth makes it an attractive ecosystem for investors, users, creators, and entrepreneurs alike to thrive as one community.

It is sad, however, that cybercriminals are taking advantage of the functionality of decentralised finance in ways that undermine confidence in the continued growth and adoption of DeFi.

It is important that every participant of the DeFi industry communicate and support each other in preventing crypto crime to thrive in the market. Impactful players in the DeFi space are encouraged to influence and lead significant changes in digital asset security and protection — in the hopes that decentralised finance and the overall crypto market doesn’t get associated with fraudulent and illicit projects as well as bad actors in digital finance.

As a member of the fast-growing DeFi community, the benefit of being part of such change through raising awareness, preventing potential exploits, and mitigating risks with parametric covers will resonate back to you in the long run.