Sunday, September 25, 2022

On August 30, 2022, the FBI issued an international warning about DeFi and crypto scams and the risks associated with the crypto platforms.

The US authority recommends that you thoroughly inform yourself before using DeFi platforms, smart contracts and protocols. This would allow crypto investors to better assess the associated risks before making an investment. According to the FBI, investors should prefer platforms whose codes have been checked at least once. The letter from the FBI states that:

“Make sure that the DeFi investment platform has undergone one or more code audits by independent auditors. A code audit usually involves a thorough review and analysis of the underlying code of the platform. This can be used to identify security risks or vulnerabilities in the code that could have a negative impact on the performance of the platform.”

In addition, the FBI stated that it was monitoring cyber criminals exploiting DeFi smartcontracts. The criminals used, among other things, investment strategies or automated smart contracts. In these contracts, “an agreement between buyer and seller is written directly in lines of code that exist in a decentralized blockchain network”. By exploiting these vulnerabilities, the cybercriminals were able to reap profits that those affected can only very difficult to recover.

The FBI advises investors who suspect that cybercriminals have stolen cryptocurrencies to ”contact the Internet Crime Complaint Center or the local FBI field office”

DeFi hacks are becoming increasingly popular

According to the FBI, many scammers use the “complexity of cross-chain functionality and the open nature of DeFi to find potential victims.

“Cybercriminals used vulnerabilities in the smart contracts of the DeFi platforms to steal virtual currencies and thus cause the loss of investor funds,” the authority explained. For example, the FBI observed a flash loan attack in which investors lost $ 3 million.

It is estimated that criminals stole $ 1.3 billion worth of cryptocurrencies between January and March 2022. Around 97% of these thefts took place on DeFi platforms. In 2021, it was only 72% and in 2020 even just 30%.

FBI Makes Recommendations for Crypto Platforms

DeFi users have the opportunity to borrow and lend assets in a similar way to banks. However, these assets are not insured and are more vulnerable to hacks and exploits, since DeFi is hardly regulated by the state until now.

The authority advises the DeFi platforms to use analyses, monitoring and code tests to eliminate potential vulnerabilities that could lead to the misuse of smart contracts.

In recent years, several consultants recommended crypto companies to implement security software with multifactor authentication. Many experts believe that this is the safest and most sustainable approach. In practice, however, this approach has not yet prevailed.

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