Report: Cryptocurrency crime rate fell 57% in 2020, but DeFi hacking incidents surged

According to blockchain security firm CipherTrace, crime targeting the virtual currency sector more than halved in 2020.

The company’s 2020 Crypto Crime and Anti-Money Laundering Report shows that losses from cryptocurrency theft, hacking and fraud fell 57% to $1.9 billion in 2020, down from a record $4.5 billion in 2019, largely due to improved security systems.

CipherTrace said that in the past two years, "large-scale exit scams" accounted for the majority of cryptocurrency crimes, such as the PlusToken Ponzi scheme alone, which netted $2.9 billion. In 2020, a similar scam called WoToken in the same crime defrauded $1.1 billion from investors, accounting for 58% of the amount of fraud in major crimes in 2020.

CipherTrace’s report found that fraud was the leading cryptocurrency crime, followed by theft and ransomware. CipherTrace CEO Dave Jevans told Reuters:

“As these financial institutions mature and implement stronger security measures, thefts from centralized exchanges continue to decline,”

However, 2020 has witnessed a surge in decentralized finance-related crimes, most of which are "rug pulls". In this case, tokens are artificially hyped and issued, and minters and early investors sell them all after the tokens rise, causing losses to latecomers.

The report explains that some bad actors will liquidate the entire liquidity pool, leaving the remaining token holders without access to liquidity and unable to trade, thus wiping out the remaining value of the tokens:

“Half of the cryptocurrency attacks in 2020 occurred on DeFi protocols, which were almost a negligible pattern in previous years, and in the second half of 2020, nearly 99% of the funds defrauded in major fraud incidents came from ‘rug pulls’ DeFi protocols and other exit scams. This exit scam model is reminiscent of the terrible ICO craze in 2017.”

Jevans added that, because they are mostly unregulated, DeFi protocols are not subject to most of the traditional enforcement mechanisms faced by centralized exchanges, money services businesses, and banks.

The report noted that the largest theft in 2020, the theft of $281 million from centralized exchange KuCoin, also involved the DeFi sector as criminals attempted to launder the funds through Uniswap, the world’s largest decentralized exchange.

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