Criminals got away with a record $4.5 billion in 2019 in the crypto market.
Fraud was the dominant cryptocurrency crime in 2020, followed by theft, and ransomware. Half of all thefts, or about $129 million, were hacks tied to decentralized finance (DeFi), which are transactions on platforms that facilitate lending outside of banks.
Cryptocurrencies have attracted renewed scrutiny and interest as institutional investors have piled into digital assets, particularly bitcoin, propelling the latter to a record high of $42,000 this month.
“Thefts from hacks against centralized exchanges continue to decrease as these financial institutions mature and adopt stronger security measures,” Dave Jevans, CipherTrace’s chief executive officer, said in an interview.
“Regulation and enforcement are restricting centralized fraud schemes, which are pushing criminals to exploit decentralized finance services,” he added.
The total number of loans on DeFi platforms was nearly $25 billion, as of late Wednesday, data from industry site DeFi Pulse showed, up more than 500% from roughly $4 billion in August last year.
DeFi sites run on open infrastructure, with algorithms that set rates in real time based on supply and demand.
“DeFi platforms enjoy many exemptions from traditional regulatory enforcement regimes that centralized exchanges, money service businesses and banks face,” said Jevans.
“For example, DeFi platforms often do not have to perform customer verification (Know Your Customer) or transaction anti-money laundering. This makes them ideal venues for moving and laundering money.”
The report also showed bitcoin addresses with criminal ties sent, at minimum, $3.5 billion worth of bitcoins throughout 2020, or less than 1% of total crypto transactions. This figure includes bitcoin addresses controlled by dark markets, ransomware actors, hackers, and fraudsters.
Jevans said the bulk of those bitcoins would be laundered by bad actors, meaning they will make their way to an exchange where they are converted to fiat currency and transferred to a bank.