Despite the rise of decentralized finance (DeFi), cryptocurrency investors appear to be sticking to centralized exchanges (CEXs) via DeFi tools, according to a new report.
Crypto investors are more comfortable holding their assets on CEXs as decentralized exchanges are still more vulnerable to the threat of hacks. This is according to a joint report by blockchain data firm Chainalysis and Bitfinex exchange published Oct. 13.
According to the study, the risks of hacks related to CEXs have decreased significantly in recent years, while various DeFi platforms have been increasingly hacked.
The total value stolen from centralized crypto platforms has fallen 58% from $972 at its peak in 2018 to $413 in 2021, according to data from Chainalysis. The number of hacks on CEXs has continued to decline this year as $80 million has been stolen from centralized crypto platforms so far in 2022.
In contrast, DeFi hacks have been booming lately, with DeFi-related hacks now accounting for 96% of theft losses and already amounting to $2.2 billion in 2022.
Additionally, year-end Bitcoin (BTC) balances on centralized platforms have remained near all-time highs in 2022 despite the ongoing cryptocurrency winter. According to Chainalysis, year-to-date bitcoin balances for centralized exchanges are now 6.9 million BTC, or an 11% increase from 6.2 million BTC three years ago.
It is important to note that the study was limited to services and protocols and did not consider the exploits of non-custodial or personal wallets. “We hope to publish research on personal wallets in the near future,” said a spokesman for the joint report.
Kim Grauer, director of research at Chainalysis, noted that CEXs are no longer the prime targets for hackers like they were in the early days of crypto, as such platforms have managed to significantly improve security and compliance. Many CEXs have specifically implemented more stringent secure operating systems such as distributed denial-of-service protection standards and third-party vetted security system checks.
“What we’ve found in our research is that many crypto fundamentals have been remarkably resilient this year despite the market turmoil,” Grauer said, adding:
“HODLers are holding, and if anything, we’ve seen an increase in crypto accumulation by longer-term holders. Much of this crypto is held on centralized exchanges.”
Bitfinex Chief Technology Officer Paolo Ardoino also pointed to the increasing resilience of centralized exchanges against hackers. Ardoino told Cointelegraph that he recommends investors use non-custodial hardware wallets to better protect their funds, explaining:
“My advice to those who own bitcoin and crypto is always cold storage self-storage. […] That being said, with the advent of 2FA and tightened security measures, CEXs are becoming safer places to deposit your crypto.”
Despite DeFi’s current massive vulnerability to hacks, Ardoino still sees DeFi as an interesting trend that could make a significant contribution to the crypto’s overall growth.
Related: $100M withdrawn from Solana DeFi platform Mango Markets, token crashes 52%
“The growth of DeFi is comparable to that of natural systems in nature,” said the Chief Technology Off, adding that DeFi “will inevitably grow and thrive as technology advances and new communities are drawn into space.” He emphasized that security remains an “enduring concern of DeFi protocols.”
The total value locked in DeFi-related smart contracts peaked at $180 billion in November last year and fell to $53 billion. Although the DeFi industry has been shrinking this year in line with the ongoing general crypto winter, the sector has continued to see a large number of hacks.
TempleDAO, a yield farming DeFi protocol, became one of the latest platforms to suffer a DeFi exploit, losing more than $2.3 million in a hack on Oct. 11. In September, cryptocurrency firm Wintermute lost about $160 million due to a DeFi hack. while its centralized financial operations were unaffected.
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