By Cryptocurrency

In a significant development, decentralized finance (DeFi) has witnessed a 40% decrease in dollars lost to security incidents from 2023 to 2024. This improvement can be attributed to enhanced protocols, stronger bridges, and advanced cryptographic measures.

Web3 Security Report Highlights DeFi Progress and CeFi Struggles

According to the annual ‘Web3 Security Report’ by blockchain security firm Hacken, DeFi’s strengthened security measures arrived in tandem with centralized finance (CeFi) facing a bleak year. CeFi breaches more than doubled while losses surged to $694 million as centralized exchanges became primary targets for access control vulnerabilities and other critical security risks.

DeFi’s Resilience Amidst Challenges

The report’s findings detail a stark difference between DeFi’s progress and CeFi’s struggles, providing a critical lens through which to view both spaces and highlighting the vulnerabilities of centralization. Despite improvements in DeFi, such as multiparty computation and zero-knowledge proofs, challenges persist.

| Year | Financial Losses |
| — | — |
| 2023 | $787 million |
| 2024 | $474 million |

The report notes that bridge-related exploits, a historical major vulnerability in DeFi, have dramatically declined from $338 million in 2023 to just $114 million in 2024.

Challenges Persist Despite Improvements

Despite the improvements in DeFi, challenges persist. Access control vulnerabilities accounted for nearly half of all DeFi losses — such as the $55 million Radiant Capital hack.

CeFi Breaches on the Rise

According to Hacken’s report, CeFi’s 2024 starkly contrasts the improvements seen in DeFi, more than doubling its 2023 financial losses to $694 million. The surge in breaches is attributed largely to access control exploits and notable incidents like:

  • The DMM exchange hack in the second quarter
  • The WazirX hack in the third quarter

These hacks involved compromised private keys and multisignature vulnerability exploits, facilitating the theft of $305 million and $230 million, respectively, from the exchanges.

Lessons to be Learned

The significant difference in financial losses between the DeFi and CeFi sectors highlights an opportunity for improvement in both industries. Dyma Budorin, co-founder and CEO of Hacken, told Cointelegraph that the report’s findings highlight ‘critical gaps’ in CeFi operational security, mainly driven by:

  • Poor private key management
  • Weak multisig setups
  • Centralized control vulnerabilities

Budorin emphasized the importance of adopting stricter key management practices and automated monitoring systems to mitigate these risks. The risks highlighted by the Hacken CEO can be seen in North Korean hackers stealing over $1.3 billion in crypto assets this year across 47 incidents, according to a Dec. 19 Chainalysis report.

The Future of DeFi and CeFi

The significant difference in financial losses between the DeFi and CeFi sectors highlights an opportunity for improvement in both industries. By adopting stricter security measures and leveraging advanced cryptographic techniques, both spaces can reduce their vulnerability to security risks.

Conclusion

In conclusion, DeFi’s strengthened security measures have led to a 40% decrease in dollars lost to security incidents from 2023 to 2024. The report highlights the importance of adopting stricter key management practices and automated monitoring systems to mitigate these risks. By doing so, both DeFi and CeFi can reduce their vulnerability to security risks and ensure a safer future for users.

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