Decentralized Finance (DeFi) is a blockchain innovation that seeks to provide a decentralized model of conventional financing. DeFi offers the same services as traditional finance institutions without a central governing entity.

By utilizing blockchain technology, all participants are in control under the umbrella of smart contracts. With such a framework, users’ asset storage and management are more flexible.

DeFi is reshaping the finance world despite rising scams and high rates of smart contract hacks. As stated in an analysis by Halborn, “The cost of DeFi hacks is on the rise, as high-loss attacks become more common in the crypto space.”

In this piece, we’ll explore why DeFi grows amid high rates of crypto hacks and scams. So, let’s dive in!

DeFi Is Not Under Regulations, Unlike Centralized Finance

This is a major contributor to why DeFi grows amid the high rates of crypto hacks and scams. Decentralized Exchanges (DEXs) like Uniswap and PancakeSwap operate independently of countries’ regulatory agencies.

Centralized exchanges (CEXs) like Binance and Coinbase must comply with regional regulations to continue market operations. With the current regulatory landscape seeing many CEX operations becoming limited or banned outright due to noncompliance, many crypto users are now opting for DEXs.

Defi Offers Crypto Users Access to dApps

Decentralized applications (dApps) are powerful tools on the blockchain network. Notably, they enable users to access more interactions and services on the blockchain. They are adopted by more users daily as they can be applied to finance, digital art (NFTs), gaming and others.

DApps like Uniswap, Metamask and OpenSea grant users a more seamless and wider range of activity than what is obtainable on CEXs. The prospects of dApps keep widening and attracting more users and this accounts for why DeFi grows amid high rates of crypto hacks and scams.

With DeFi, Funds Are in the User’s Custody

Despite the rising incidence of crypto hacks and scams, more users are drawn to DeFi as they have custody of their crypto assets. This is not the case with CEXs where the assets are held by the central service provider, outside the users’ custody.

To clarify, access to crypto wallets is granted only through private keys. Users on DEXs have custody of their private keys which equals custody of the assets inside. On the other hand, users do not have their private keys on a CEX.

This brings us to another point why DeFi grows amid the high rates of crypto hacks and scams.

Centralized Finance Platforms Can Collapse, DeFi Platforms Cannot

Consider the possibility that a central service provider can fold up and cause untold losses of customers’ assets which cannot be retrieved as they don’t have the private keys to their wallets on the CEX. This is an alarming possibility with the FTX collapse in November 2022 as a prototype.

Millions of users lost their assets globally from the collapse of this major CEX. Such an event will drive the influx of users to DEXs which cannot suffer a collapse but just localized hacks sometimes.

With DeFi, all the smart contract coding information and transaction details are stored transparently on the blockchain. This accounts for the security in DeFi but the transparency can also be exploited by hackers.

In conclusion

Though crypto hacks and scams are increasing, DeFi adoption continues to grow. With the potential to revolutionize finance, this sector of the crypto space continues to thrive despite hackers’ increasing efforts.