- Less than half of crypto projects survive a hack, according to a new study.
- But their chances changed dramatically when they refunded users.
Less than half of all DeFi protocols that fall victim to a hack or exploit survive the experience.
This is according to a study by Cozy Finance, a blockchain-based marketplace that offers DeFi companies “FDIC-like” insurance.
Cozy examined the experience of 64 projects that had at least $1 million in user deposits at the time of the hack. Only 39%, or 25 of these projects, survived.
“Many DeFi founders take a fatalistic view of hacks, striving to prevent them with security best practices, but assuming that a hack will likely end the project,” Cozy’s report states.
“It’s more likely that a project will survive a hack than many people think.”
Decentralized finance is rife with hacks and exploits. The reason is simple: blockchain transactions are irreversible.
Once crypto is in a hacker’s wallet, no bank or government can reverse an illegitimate transaction on a victim’s behalf.
The consequences are staggering: more than $1.2 billion worth of crypto has been stolen this year, according to data from DefiLlama. More than $9 billion has been stolen since 2016, when hackers took 3.6 million Ether – worth around $60 billion – from the DAO in the first major crypto hack.
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DeFi projects have become a particularly attractive target for North Korea. According to US law enforcement, the crypto stolen by North Korea was used to finance the country’s nuclear weapons program.
According to Cozy’s research, a DeFi project’s chances of survival varied greatly depending on its ability to recover stolen crypto and reimburse users.
Around 44% of hacked projects reviewed by Cozy managed to recover some or all of the stolen money. Of these, 28% recovered the stolen crypto using “technical intervention” and in 31% of cases, hackers or law enforcement returned the crypto.
They were almost twice as likely to survive the experience. And projects capable of significantly reimbursing users have done even better.
According to Cozy, two-thirds of those who returned 80% of stolen cryptocurrencies to users survived. On the other hand, those who only return a quarter of user funds have a horrendous survival rate of 14%.
Certainly, recovering the stolen crypto likely made it much easier for users to be reimbursed. But even those who couldn’t get any cryptocurrency back did much better when they found a way to refund users.
“Among the 26 projects whose reimbursement rate was less than 25%, only 12% survived,” notes Cozy.
“Conversely, among the 10 projects with a reimbursement rate above 25% the survival rate rose to 80% and the 6 projects reimbursing above 60% had a survival rate of 100%. »
Cozy Finance did not immediately respond to DL News’ request for comment.
Aleks Gilbert is DL News’ DeFi correspondent based in New York. You can contact him at aleks@dlnews.com.
