In 2020, Americans Lost $4.2B to Online Fraud – DeFi Hacks Totaled $154M
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In 2020, Americans Lost $4.2B to Online Fraud – DeFi Hacks Totaled $154M

In the ever-evolving online financial world, with innovations come new opportunities for exploitation.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Being one of the most appreciated innovations in the crypto industry, DeFi has successfully won the respect of prominent businesses and top-tier financial institutions. With its explosive growth in both users and value, the DeFi ecosystem has amassed over $130 billion locked value up to this point, $71 billion of which accounts for the TVL on Ethereum. 

A few years from now, we might recall the current financial system and wonder how inefficient and dull it was compared to decentralized finance. But until then, it is good to cogitate that DeFi is still in the experimental phase, and there remains much progress to be made. 

DeFi Addresses the Biggest Financial Problems

A large group of people in the world do not have access to conventional financial services such as banks and brokerage accounts. To use such services, usually, a government-issued ID, social security number, passport, and more documents are required.

Further, many banks and brokerage accounts do not offer services for citizens from specific jurisdictions. This—along with the head-scratching high transaction fees—represents the vast percentage of conventional financial services providers as a weak medium of exchange.

On the other hand, DeFi is a system where groups of researchers and engineers have allied to re-imagine financial services, far away from the reach of government regulators. DeFi aspires to facilitate global access to the global economy, enabling anybody with an internet connection and a crypto wallet from anywhere in the world to take part in the international marketplace.

The Current State of DeFi: A Recap of Key Metrics

The DeFi ecosystem has undergone explosive growth in both user-base and value. In terms of users, the system has attracted more than 2 million users (unique addresses) in the last 12 months. In terms of total value locked, there is over $130 billion locked up in DeFi in total, $71 billion of which accounts for TVL on Ethereum. 

The daily trading volume on decentralized exchanges (DEX) regularly exceeds $2B, showcasing the overall adoption of DeFi. Though, DeFi is still in the experimental phase. 

The Leaks in DeFi’s Security

It is no secret that DeFi has been exploited numerous times since its inception. In 2020 alone, 17 major DeFi exploits and hacks occurred that resulted in the loss of a whopping $154 million

While the number is enormous and worrisome, it is not fair to reach a verdict based on this alone. First and foremost, DeFi is still in its infancy, and dozens of developers are working to improve every possible aspect of the system—starting with the security flaws and extending to various aspects of UI/UX.

Furthermore, every innovation brings with itself new opportunities for exploitation. But this is not an indication of the innovation’s non-viability or inefficiency, it is merely a sign that more debugging and problem solving is required.

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A Bigger Picture of Online Financial Fraud

Financial crimes and scandals are an inseparable part of the online world. While exploits in newer innovations like DeFi can appear to be a great portion of the total online financial fraud, it is much smaller when compared numerically. For example, in 2020, American’s lost $4.2 billion due to online financial fraud. In the same year, $154 million was lost due to hacks in the DeFi space.

The total supply of USD is estimated to be $18.3 trillion, of which $4.2 billion was lost due to exploitation in 2020. This suggests that about 0.022% of USD’s total supply was lost to online financial fraud.

Meanwhile, the total value of the DeFi sector is $130 billion, of which $154 million was lost, which accounts for approximately 0.11%. While the percentages seem to work against DeFi, a closer look suggests something different.

For one, the entire money supply of USD is not in circulation. To take things a step further, a great percentage of the USD which is in circulation never trades in online markets. This is in great contrast to the DeFi sector which has its entire supply in the online market, making the difference between percentages pale.

Do you think DeFi hosts more exploitation than conventional financial systems? Knowing that it facilitates global access to the global economy, don’t you think it is a better alternative?