DeFi Hacks Spark US DoJ Crackdown: Protecting Innovation or Stifling Growth?

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The surge in decentralized finance (DeFi) hacks has become a critical concern for the US Department of Justice (DoJ), as noted in their regard for the thefts as a “pretty significant issue.” Not only have generic bad actors taken advantage of DeFi vulnerabilities, but state-sponsored North Korean hackers have also begun joining the fray, reportedly stealing $1.7 billion in 2022 alone. With a total of $49 billion reportedly lost across the entire crypto sphere in 2022, the DoJ has taken serious interest in bringing these perpetrators to justice.

Eun Young Choi, the DOJ’s National Cryptocurrency Enforcement Team (NCET) director, stated that the department would place greater focus on thefts and hacks associated with chain bridges. North Korean hackers’ newfound presence in these illicit activities only serves to exacerbate the urgency of the problem. The primary function of the NCET would be tracking and investigating cybercrime, money laundering, crypto thefts, and forfeitures.

Although the DOJ did not specify the intended pursuit of DeFi hackers at the time of the department’s formation, they indicated the primary focus would be directed towards “mixing and tumbling services.” Choi further stated during the Financial Times Crypto and Digital Assets Summit that the Department of Justice would be enacting measures against firms that either commit or enable criminal acts.

The real issue lies in companies that obscure transactional trails, thereby allowing money laundering and enabling wrongdoers. Authorities targeting the sources of these crimes expect to see a “multiplier effect” in preventing these bad actors from profiting effortlessly from their illegal operations. Moreover, the dramatic increase in illegitimate use of digital assets within the past four years only serves to underscore the need for more aggressive action.

Although it is essential to recognize the potential of DeFi technology, one cannot ignore the vulnerabilities that come with it. Despite the high-profile DeFi hacks throughout 2022, 2023 has seen no respite, with different platforms falling victim to severe losses – Euler Finance, for instance, losing $196 million worth of DAI, USDC, stETH, and WBTC on March 13.

In conclusion, the rapidly evolving landscape of DeFi technologies is the double-edged sword that leads to increased adoption alongside heightened risks. Therefore, it is imperative for governments like the US to take an active approach to combating cybercrime and securing decentralized finance protocols through the proper implementation of regulations, thereby supporting a stable financial future using emerging technologies.

Source: Cryptonews

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