Crypto DeFi protocols lost $1.4 billion this year but recovered over half of it

• Decentralised finance (DeFi) lost $1.4 billion to exploits and bugs this year so far, but more than half of that has been returned.
• The net loss comes up to around $680 million, according to The Block’s Data Dashboard.
• Flash loans are the most common exploits of DeFi protocols as seen during the sale of a’ CryptoPunk non-fungible token (NFT) for an eye-popping $532 million last week.

Decentralised finance (DeFi) applications have been growing multi-fold this year, and so have the exploits to undermine their utility. The good news is that despite the number of hacks rising, there are signs of recovery too.



According to data from The Block’s Data Dashboard, there was a whopping 1.4 billion taken from DeFi protocols so far this year due to exploits and bugs. However, $760 million was subsequently returned resulting in a net loss of $680 million.

The DeFi industry has been growing at a breakneck pace since 2020. According to DeFi Llama, the total value locked in DeFi has risen to a massive $254 billion so far, up over 40 times since October last year. At the time, the total value locked in these platforms amounted to about $8.5 billion.

Ethereum leads in terms of the number of exploits, which isn’t surprising given that it’s the most popular blockchain platform used in these services. The platform along with the Binance Smart Chain (BSC) accounted for 59 exploits, with 34 of them against Ethereum. Polygon saw three attacks, while the Avalanche protocol saw two. Other platforms accounted for the rest, in a total of 70 DeFi exploits in 2021.

Interestingly, while popular chains like Ethereum, BSC and others did have to deal with exploits, the five biggest attacks were against the Poly Network. Though they were eventually returned -- accounting for $611 million of the returned value.

Big DeFi attacks in 2021

According to AtlasVPN, DeFi hacks accounted for 76% of all hacks in 2021. The September report from the company said that the amount lost in 2021 more than doubled against the numbers recorded in 2020.

In May, an exploit of DeFi protocol xToken led perpetrators to make away with $24.5 million. The attackers used a flash loan, which are uncollateralized loans that depend on smart contracts instead of a real world collateral. Flash loans are amongst the most popular DeFi exploits being recorded today.

But the exploit against xToken was dwarfed by Cream Finance, which lost $130 million in a similar scam. "With the help of friends from @iearnfinance and others in the community, we were able to identify the vulnerabilities and patch them. In the meantime, we've paused our v1 lending markets on Ethereum and we're in the process of putting together a post-mortem review," the team behind the Ethereum protocol said after the hack.

Just last week, CryptoPunk 9998, sold for $532 million and was momentarily thought to be the most expensive NFT in the collection. However, it later turned out that it was actually the owner pumping up the CryptoPunk’s price by selling it to themselves using a flash loan.

The first DeFi exploit of the year was recorded in February, when DeFi platform Yearn Finance lost $11 million worth of users’ funds after attackers exploited vulnerabilities in its smart contracts systems. This was followed by a hack of Alpha Finance, which was another flash loan scam that led to the loss of $37 million.

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