Despite the rise of decentralized finance (DeFi), crypto investors still seem to prefer centralized exchanges (CEX) over DeFi tools, according to a new report.
Crypto investors feel more comfortable holding their assets on CEXs as decentralized exchanges remain more vulnerable to the threat of hacks. This is according to a joint report by blockchain data firm Chainalysis and exchange Bitfinex, published on Oct. 13.
According to the study, The hacking risks associated with CEXs have decreased significantly in recent years, while various DeFi platforms have been increasingly hacked.
Total value stolen from centralized cryptocurrency platforms has dropped by 58%rising from $972 at its peak in 2018 to $413 in 2021, according to data from Chainalysis. The number of CEX hacks has continued to decline this year, with $80 million stolen from centralized cryptocurrency platforms so far in 2022.
On the contrary, DeFi hacks have been on the rise recently, with DeFi-related hacks now accounting for 96% of theft losses, already amounting to $2.2 billion in 2022.
Also, year-end bitcoin (BTC) balances on centralized platforms have remained near all-time highs in 2022 despite the current crypto winter. According to Chainalysis, year-to-date bitcoin balances for centralized exchanges now stand at 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, without taking into account the exploits of non-custodial or personal wallets. “We hope to publish research related to personal wallets in the near future,” said a spokesperson for the joint report.
Kim Grauer, director of research at Chainalysis, noted that CEXs are no longer prime targets for hackers as they were in the early days, because these platforms have managed to significantly improve their security and compliance. Many CEXs have specifically implemented more stringent secure operating systems, such as distributed denial of service protection standards and audited third-party security system checks.
“We found in our research that many cryptocurrency fundamentals have remained remarkably stable this year, despite market turmoil,” Grauer stated.and I add:
“HODLers are holding, and if anything, we saw an increase in crypto accumulation by long-term holders. Much of these cryptocurrencies are held on centralized exchanges.”
Bitfinex CTOPaolo Ardoino also noted the growing resistance of centralized exchanges against hackers. Ardoino told Cointelegraph that he recommends investors use non-custodial hardware wallets to better protect their funds, stating:
“My advice to those holding bitcoin and cryptocurrencies is always self-custody in cold storage. […]. That said, CEXs are becoming safer places to leave your crypto, thanks to the advent of 2FA and tighter security measures.”
Despite DeFi’s current massive vulnerability to hacks, Ardoino continues to see DeFi as an interesting trend that can contribute significantly to the overall growth of the crypto industry.
“The growth of DeFi is comparable to that of natural systems in nature,” the CTO said, adding that DeFi “will inevitably grow and flourish as the technology evolves and new communities are drawn into the space.” He underscored that security remains a “perennial concern for DeFi protocols.”
The total value locked in DeFi-related smart contracts peaked at $180 billion in November last year, dropping to $53 billion.. Even though the DeFi industry has shrunk this year in line with the current crypto winter in general, the sector has continued to see a high number of hacks.
TempleDAO, a yield-farming DeFi protocol, became one of the latest platforms to suffer a DeFi exploit; lost more than $2.3 million in a hack on October 11. In September, crypto firm ermute lost around $160 million due to a DeFi hack, but its centralized financial operations were not affected.
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