This is what CNBC specifically reported as a headline "Criminals have made off with over $10 billion in ‘DeFi’ scams and thefts this year". Last week, there were a bunch more headlines like this.

This, to me, is a rather absurd amount because that would mean that 4% of the total value in defi was stolen by criminals. And that's a seriously bad rate. So unlike the journalists, I actually did my research and read the report and here's what was actually written.

​

In total, just over $12 billion in losses have been suffered as a result of DeFi theft – $2 billion in direct losses and $10 billion in protocol losses. $721 million of these direct losses were subsequently recovered.

​

One thing that caught my attention was the $10 billion in "protocol losses." Of course the major news outlets didn't discern the types of losses reported. Anyway, protocol losses was defined as:

​

losses in the value of tokens linked to a DApp (eg governance tokens) as a result of the fraud. These losses are suffered by holders of these tokens, and typically reflect lower confidence in the DApp.

​

I thought this was an odd way of defining 'theft and fraud'. To contextualize, that would be the equivalent of reporting that "Bitcoin crimes amount to $1.78 billion" or 82% of its total value when Mt. Gox was hacked back in 2013. When in reality, The hackers only stole ~$460 million worth in Bitcoin and the market dropped $1.32 billion because investors pulled out based on the news. $1.32 billion worth of BTC wasn't actually stolen or lost; it was just devalued by the market as a result of the Mt. Gox news.

A similar real life example. In the Euros football tournament, one of the sport's pristine tournaments, there was a time that Ronaldo 'shunned Coca-cola' and implied to drink "water" instead. Apparently, Coca-cola, who was a tournament sponsor, lost $4 billion in market value after that. Imagine a report coming out that wrote, "Investors has suffered more than $4 billion in losses due to Cristiano Ronaldo."

Yes, defi is still early and still a risky space. But it's not as bad as the media portrays it out to be

It's classic fear mongering in my opinion. I won't go too deep into the analysts at Elliptic who wrote the report because I think it was well-written and the disclaimers were all there to see. Their partners are financial institutions and centralized crypto service providers and their main agenda with the report was regulating the defi space.

If you remove the 'protocol losses' that's $2B lost from defi theft and fraud this year. Then you have to deduct the $721 million that was recovered. They also reported that the total value in defi at the time of reporting was $247 billion. So to summarize, the report should've been:

​

There has been roughly $1.279 billion lost from DeFi exploitations in 2021. This impacted value accounts for around 0.52% of the estimated $247 billion total value locked in DeFi during the same period of time.

​

A 0.52% exploitation rate would've been a fairer assessment and also in line with reports from Kraken and other sources. In 2020, for example, Kraken reported a similar exploitation rate of 0.58%. Similarly, another platform reports $1.5 billion in losses this year from a total of 72 exploits.

But, as informative as the numbers are, they aren't eye-popping. They don't get clicks. They don't drive agendas. And they don't get picked up by the news.

I've used defi for over a year now and I've never experienced losing money in exploits. But that doesn't mean exploits don't happen because they do and it's fairly easy to put yourself in a position where you will get exploited. If you're recklessly jumping in to obscure protocols, then you will get exploited. If you jump in to protocols that recently launched and hasn't even been audited yet, you will get exploited. Remember, no one will be there to hold your hand.

Defi isn't perfect. Having been an extensive user, I'll be the first one to admit that. I'd even say defi still is a ways to go from mass adoption. But there are ways to safely navigate defi and we should move on from the narrative that defi is some sort of Mad Max dystopian world where you could get rekt just by going out in the open. It's the same narrative the world was using against Bitcoin in 2013. Defi is a movement to enable average joes to 'be our own banks'. No one ever said being a bank is easy. But, because of defi, it's possible to do so; all you need is education.

​

​

tl;dr: More than $10 billion was reported to be 'lost' in defi scams, but the direct losses only amount to $1.27 billion or an exploitation likelihood rate of 0.52% at the time of reporting.