Crypto and DeFi Losses Hit $3.9 Billion in 2022, Says Report

Despite the 2022 market crash, the crypto industry remains a tempting opportunity for “black hat hackers.” According to CoinMarketCap, the crypto space was worth $934.85 billion at the end of Q3 2022.

When compared to the end of Q2, this represents a 4% increase while representing only 43.56% of the market cap at the end of Q1. Two-thirds of the way down from the market’s peak of $3 trillion in November 2021.

In addition to traditional techniques such as phishing, the industry’s relative youth makes it easier to exploit less battle-tested technologies. These include newcomers to the scene, such as cross-chain bridge hacks.

(Unlike “white hat” hackers who exploit with good intentions, black hat hackers break in with malicious intent. The term “black hat” derives from 1950s gangster films in which the villains wore black fedoras.)

According to a new Immunefi report, there were 168 instances of protocol exploits and alleged rug pulls. These include allegations of fraud as well as successful and “semi-successful” hacking attempts. According to their calculations, the web3 ecosystem will lose $3.9 billion in 2022. The vast majority of that ($3.7 billion) was stolen in 134 separate hacks. According to their research, the remaining total in fraud was 175 million spread across 34 incidents.

Immunefi compiles its reports using publicly available data. BeInCrypto has examined its work and broken down some of the report’s key components.

DeFi remained the most popular target for black hat hackers, as it had in previous years. In 2022, the DeFi ecosystem suffered $3.1 billion in losses as a result of 155 separate hacks. A significant increase over the previous year. DeFi lost $2.4 billion in 107 separate hacks in 2021, a 56.2% increase. According to a separate report by crypto data aggregator Token Terminal, 50% of DeFi exploits target cross-chain bridges.

This contrasts with CeFi, which saw a decrease from the previous year and a fraction of DeFi’s hack-related losses last year. According to the report, CeFi projects were only hacked 13 times, totaling $769 million. CeFi lost $6 billion in 9 incidents in 2021. That is a massive 87.3% decrease.

Layer-1 blockchain and BNB Chain In 2022, Ethereum and Bitcoin were the two most targeted chains, accounting for more than half of all chain attacks (63.3%).

Hackers preferred the Binance-initiated chain by a wide margin, with over a third (36.1%) of total attacks across targeted chains directed at the Binance-initiated chain. When compared to 2021, which saw 43 attacks on the network, the number of attacks on BNB Chain has increased by 51.2%.

Ethereum witnessed 49 incidents, accounting for 27.2% of all incidents across all targeted chains. This figure represents an 8.9% increase over 2021, when Ethereum experienced 45 attacks.

Solana came in third place with 12 hacks, accounting for 6.7% of total attacks across chains. Avalanche was followed by Polygon with four incidents, accounting for 2.2%, and NEAR with two incidents, accounting for 1.1%. According to the report, Polkadot only experienced one attack, accounting for 0.6% of all attacks.

According to Immunefi’s findings, the “remaining chains such as Gnosis, Cronos, Arbitrum, Fantom, and others collectively represented 21.7% of total chain attacks.”

The collapse of FTX, as we all know, dominated the latter half of last year. That quarter’s exploit numbers were also dominated by Sam Bankman-now-defunct Fried’s exchange. Hackers stole hundreds of millions of dollars in the early hours of November 12, which were then transferred to cold storage. Just days before, FTX filed for Chapter 11 bankruptcy protection in the United States.

With $1.2 billion in total losses across 55 incidents, Q4’s exploit numbers blew every other quarter out of the water. Representing a whopping 41% of last year’s losses. The majority of the losses came from the FTX and BNB chains, which totaled $1.2 billion.

The second most dramatic quarter was dominated by two distinct exploits, Ronin Network and Wormhole, which were hacked for $625 million and $326 million, respectively. Users of Ronin Network were later reimbursed following a cash injection from Binance. Around $400 million in coins were stolen from users of the game Axie Infinity. Wormhole is a cross-chain bridge that hackers gained access to after exploiting the platform’s smart contract.

Other notable losses included Nomad’s $190 million, BNB Chain’s $570 million, and FTX’s $650 million, which accounted for roughly 60% of total losses.

There is, however, a silver lining. The report estimates that $204 million of the $3.9 billion in funds stolen through hacking and fraud has been recovered. However, this only accounts for 5.2% of total losses in 2022.

The most successful recovery resulted from the Multichain hack, one of the year’s first exploits. Initially, users complained about the bridge’s lack of assistance and communication. By the end of February, however, the protocol had recovered 50% of all funds. According to the report, by the end of the year, Multichain’s users had received $2.6 million of the $3 million stolen.