Mark Cuban recently compared the explosive growth of DeFi with the ‘early days of the Internet’. Major asset management firms and financial services juggernauts are entering the DeFi ecosystem: the amount of value locked in various DeFi projects is skyrocketing.
With the growth of DeFi, its technology, accessibility, and security are still in early development stages. Naturally, crypto platforms become a major target for hackers to profit from less than ideal technology.
According to the research done by Atlas VPN, a total of $3.8B of crypto has been stolen in 2020 alone. Because Ethereum’s smart contract turing-completeness makes many DeFi projects prone to being exploited and hacked, it is likely that hackers will continue exploiting the early entrants into the market.
We believe that DeFi platforms must become safe and accessible before any wider adoption can become possible. Unless all users can make transactions and operate with minimum risk, mainstream DeFi is not likely to happen.
The Problem
The $3.8B stolen during 122 crypto hacks (including DeFi) last year showed how the booming ecosystem can become a target of cyber attacks, resulting in catastrophic consequences for investors, developers, and everyday users. Some of the more recent hacks include:
- PAID Network. Had several successful audits but experienced a mint hack on the protocol. Someone managed to mint $100 million worth of the token and dumped it, reducing the price by 80%.
- DODO. Drained of $3.8M in DeFi Exploit. DODO expects just under half of those funds ($1.88 million) to be returned.
- Alpha Finance & Cream Finance. Lost $37.5m through a flashloan attack. Luckily, the users weren’t affected as such, but the price of $CREAM quickly fell by over 34%.
- Furucombo. Suffered $14 million “evil contract” hack. “Evil contract” is an exploit where an attacker creates a contract that fools a protocol into believing it belongs there, giving them access to protocol funds.
- Opyn. Lost $371k during the exploit of the Opyn’s put option tokens. Because Opyn’s option protocol is decentralised, the team does not control it and could not shut it down during the hack.
Although the loss of digital assets seems like the worst misfortune arising from these hacks, reputational damage and loss of goodwill may breed even worse long-term consequences for DeFi as a whole.
A young and quickly growing DeFi community has given a chance to bring many successful projects to life. However, while a lot has been achieved to prove the functionality of DeFi to date, safety in the ecosystem remains the main problem preventing DeFi from taking the leap to become mainstream.
Having observed the failure of conventional platforms to ensure safety, we feel that the DeFi community, more than anyone, has a responsibility to make DeFi safe. Therefore, we aim to provide the platform that unites DeFi enthusiasts to solve the security problem together.
Prevention vs Mitigation
Some of the most recent hacks in 2020 show token creators and holders as highly vulnerable. DeFi platforms, exchanges, and wallets focus on preventing hacks; however the amount of funds stolen clearly shows: hack prevention fails to prevent losses.
We believe that an alternative approach to improve the safety of DeFi should be employed. The nature of crypto tokens and transactions allows token creators to insert code into their tokens.
As a result, it is possible to freeze any fraudulent transactions based on a set of fraud identification parameters. Because of that, post-fraud loss mitigation would serve as a way to solve the security crisis in DeFi.
Meaning even after the fraud prevention systems had failed during the cyber attacks, the $3.8B in stolen currency could have been recovered with a loss mitigation tool.
Introducing Lossless
Lossless protocol is the first tool that monitors and detects hacks to help affected entities retrieve their stolen funds.
At its core, this protocol is a piece of code that token creators insert into their tokens. This empowers Lossless to freeze any fraudulent transaction based on a set of fraud identification parameters.
Lossless protocol introduces two levels of loss mitigation, which were designed to decentralise the process by involving various independent entities and the wider DeFi community in fraud prevention.
Firstly, Lossless will introduce a proof-of-stake hack finding platform, equipped with an intuitive dashboard that allows manual overview and reporting for hack spotters. The system will allow for bot-friendly APIs to host a wide variety of community-created bots that spot hacks automatically. Considerable rewards will be transparently distributed for hack-spotters to guarantee high levels of community participation and continuous innovation. With that, Lossless will be the first platform to reward and incentivize white hat hackers to make DeFi safer for everyone. Once the hacks are spotted, the stolen funds will be frozen and await overview in the second step.
Secondly, the Lossless Decision Making Body will be introduced to overview and confirm the frozen transactions. The Decision Making Body will feature investors with a significant share of $LSS tokens and key public figures that provide trusted and unbiased decision-making, such as auditing firms. If a hack is verified, the committee will enact a proposal to revert the stolen funds back to the original address.
As a team of experienced engineers, finance professionals, as well as DeFi experts and white hat hackers, we are dedicated to making crypto investing accessible and safe.
In the next articles, we will explore our vision, technology, and other elements for the new age of security in DeFi with Lossless.
What is Lossless?
Lossless is the world’s first crypto hack mitigation tool.
Implemented into the token, the Lossless protocol allows to freeze and retrieve any fraudulent transaction based on a set of hack identification parameters.
Lossless aims to create a trusted and safe DeFi ecosystem with minimized losses from hacks, exploits or social engineering.
Enter Lossless DeFi:
