Disclaimer: The Industry Talk section features insights by crypto industry players and is not a part of the editorial content of Cryptonews.com.
The year 2022 is off to a terrible start for the decentralized finance industry. Although DeFi protocols remain popular, the number of exploits and thefts keeps rising. Coin stats CEO and Founder Narek Gevorgyan expects significant improvements on this front in the coming years.
DeFi Exploits Still Reign Supreme
Today, the decentralized finance industry represents over USD 235 billion in Total Value Locked (TVL). It is a vast increase over the USD 110 billion recorded a year ago. But, unfortunately, there is always a second side to every story. Despite the overall growth in TVL, there is also a steep increase in exploits affecting decentralized finance protocols, products, and services.
The first two months of 2022 culminated in various hacks and missing hundreds of millions of dollars. While some heists are smaller than others – Tinyman lost USD 3 million, and Lympo got exploited for USD 18.7 million – there are far bigger numbers. For example, Qubit Finance lost USD 80 million, with Wormhole losing USD 326 million. In most recent weeks, we had the Ronin Bridge exploit for USD 600 million and the Beanstalk Farms hack resulted in a USD 180 million loss serve as good “examples”.
CoinStats CEO Narek Govergyan comments:
“There are two major problems in DeFi. Security and user interface. The best talent in the world are working on these, and I believe the community is strong enough to tackle them in a matter of years.”
While it is not uncommon to expect growing pains on the security front, these losses keep piling up. It is essential to consider that 2021 was even worse, with over 50 recorded DeFi hacks and exploits. Last year, over USD 10 billion was lost due to these security incidents. Yet, despite that negative record, the overall interest in decentralized finance hasn’t diminished.
Closing The Ranks Is Essential
One positive note in all of this is how every security incident serves as a viable lesson to do better in the future. Moreover, it has emphasized projects going through code audits before letting the public access their services. Although not every project gets an audit, companies like CertiK, Coinspect, Diligence, Hacken, and PeckShield continue to drive the industry forward.
It will be essential for the decentralized finance community to close the ranks and push for better security. Nothing will happen without people raising their voices and offering ideas or suggestions. The decentralized nature of these protocols makes it easier for community members to suggest improvements and proposals. Every thought and opinion is important.
Narek Gevorgyan weighs in:
“This reminds me of the early days of Facebook when people were exploiting users’ data through very simple Facebook apps. I am confident that the industry will eventually mature out of this exploit-ridden phase. I would like to believe that DeFi insurance protocols would dampen the effects of hacks and exploits and help reinforce trust in the DeFi space.”
Gevorgyan raises another interesting point DeFi insurance. Various service providers will insure the funds locked up in DeFi protocols up to a certain amount. It is good to have insurance in place, although it should not be the sole failsafe either. Protocols need a backup pool of funds in case things go awry. As history has shown, a hack of an exploit can always occur when one least expects it.
The DeFi Industry Trucks Along
Despite the setbacks throughout 2021 and early 2022, DeFi is not stopping. Its Total Value locked fluctuates a fair bit, but that is primarily due to bearish market conditions for crypto assets. When the value of Ethereum or Solana changes, it will affect the TVL across DeFi protocols built on that chain. The important takeaway is, when looking at long-term growth, decentralized finance has shown tremendous robustness.
CoinStats CEO Narek Govergyan adds:
“The more we see DeFi adoption more we will see hackers trying to exploit this or that protocol, which happened too in the early stages of internet and is completely normal, so long as the industry is strong enough to not be deterred by such events.”
So far, the industry has not been deterred by any exploit, hack, or theft. Instead, every incident has put a negative spotlight on DeFi, yet it has also paved the way for broader development and adoption. Overall, there is still strong momentum in the decentralized finance industry. Once these kinks and growing pains have been put to bed, things are bound to get very interesting.