Can Security Upgrades Keep the Trend?

• DeFi exploit losses dropped significantly to $1B in 2024, showing improved protocol security.
• April 2021 had peak losses of $2.5B due to mechanism flaws, highlighting DeFi’s early risks.
• Terra/Luna’s $50B collapse underscored risks in algorithmic stablecoins, impacting DeFi trust.

Losses from exploits in decentralized finance (DeFi) have decreased in 2024, with reported losses hovering just around $1 billion. This is a marked improvement over previous years, when the industry faced numerous breaches.

Data on “Value Lost to Exploits (Excluding Terra)” from July 2020 to October 2024 shows changes in crypto asset losses, with theft activities increasing through 2021 and 2022. The reduced exploit-related losses in 2024 suggest that security improvements in DeFi protocols are working, with recent losses falling below $250 million.

Analysis of DeFi Exploit Losses Over Time

Since July 2020, the crypto market has suffered losses from DeFi exploits. The biggest spike occurred in April 2021, with losses over $2.5 billion, due to weaknesses in mechanism design.

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From January 2022 to October 2022, there were additional surges, particularly in January, April, and October, with losses ranging between $500 million and $1 billion. By October 2024, reported losses were below $250 million, likely because of improved risk management and security infrastructure within DeFi.

The Terra/Luna Crisis: A Unique Case

Unlike other exploit-related losses, the Terra/Luna crisis caused a massive loss of over $50 billion. This incident involved the collapse of the TerraUSD (UST) stablecoin and its associated token LUNA due to flaws in its mechanism design.

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Although believed to have resulted from an economic attack, the UST’s de-peg was largely due to insufficient design practices. The event had a major impact on DeFi, affecting over 25% of its total value locked (TVL) and reducing trust in algorithmic stablecoins. In April 2021, over $2.5 billion in loss was driven by mechanism design issues, with additional difficulties in price control and private key management.

Price manipulation, governance attacks, and smart contract bugs have been persistent exploit vectors, with smart contract vulnerabilities causing significant losses from mid-2023 onward. While rug-pulls occurred in some periods, they were less frequent than other exploit types.