Any new technology that can offer benefits to the world at large likely also has the potential to be abused by bad actors for their own personal gain, a new report by Blockchain data platform Chainalysis found.
“Operators in the industry associated with that technology need to work to stamp out that abuse. If they do this successfully, we’d expect to see illicit usage of the new technology make up a smaller and smaller share of total usage over time. That positive progress is exactly what we’ve seen with cryptocurrency,” Chainalysis said.
While cryptocurrency-based crime remains an important problem to solve, especially given that rising overall transaction volumes mean the raw value of illicit transactions is still growing, illicit activity has become a less prominent part of the overall cryptocurrency ecosystem over the last three years.
However, according to Chainalysis, decentralized finance (DeFi) specifically appears to be going through the same growing pains that cryptocurrency as a whole was previously, with illicit activity rising over the last two years.
The report shows that illicit DeFi transactions have risen steadily over the last three years, in terms of both raw values and also as a share of all transaction value. This is primarily observed in two areas: Theft of funds through hacking, and abuse of DeFi protocols for money laundering.
The value stolen from DeFi protocols has been trending up since the beginning of 2021, reaching its highest ever levels in Q1 2022, driven by hacks of the Ronin Bridge and Wormhole Network.
According to the findings, in 2021. As of May 1, DeFi protocols account for 97 percent of the $1.68 billion worth of cryptocurrency stolen in 2022.
Even worse, much of the cryptocurrency stolen from DeFi protocols have gone to hacking groups associated with the North Korean government, especially in 2022.
Money laundering is another serious issue, as DeFi protocols represent a bigger and bigger share of all funds sent from illicit addresses to services over the last two years.