Scammers took home $14 billion in cryptocurrency in 2021, thanks in large part to the rise of decentralized finance (DeFi) platforms, according to new data from blockchain analytics firm Chainalysis.
Losses from crypto-related crime rose 79 percent from a year earlier, driven by a spike in theft and scams.
Scamming was the greatest form of cryptocurrency-based crime in 2021, followed by theft — most of which occurred through hacking of cryptocurrency businesses.
The firm says that DeFi is a big part of the story for both, in yet another warning for those dabbling in this emerging segment of the crypto industry.
“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike,” Chainalysis wrote in its annual Crypto Crime report.
“But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”
DeFi is a rapidly growing sector of the crypto market that aims to cut out middlemen, such as banks, from traditional financial transactions, like securing a loan.
With DeFi, banks and lawyers are replaced by a programmable piece of code called a smart contract. This contract is written on a public blockchain, like ethereum or solana, and it executes when certain conditions are met, negating the need for a central intermediary.
Cryptocurrency theft rose 516 percent from 2020, to $3.2 billion worth of cryptocurrency. Of this total, 72 percent of stolen funds were taken from DeFi protocols.
Losses from scams rose 82 percent to $7.8 billion worth of cryptocurrency.
Over $2.8 billion of this total came from a relatively new but very popular type of scheme known as a “rug pull,” in which developers build what appear to be legitimate cryptocurrency projects, before ultimately taking investors’ money and disappearing.