A wave of attacks linked to North Korean hackers has triggered a massive outflow from the decentralized finance (DeFi) market, undermining confidence across the cryptocurrency industry and exposing what critics say are deep structural weaknesses in the sector once touted as an alternative to traditional finance.
According to data from analytics platform DefiLlama cited by the Financial Times on Tuesday, roughly $14 billion has exited the DeFi market following a series of attacks targeting DeFi lending platform Aave and trading platform Drift.
Hackers reportedly stole about $280 million from Drift last month. In April, they also siphoned off roughly $290 million worth of tokens tied to DeFi platform KelpDAO, then used those assets as collateral to secure additional loans from Aave, the FT reported. The incident allegedly exposed Aave to as much as $230 million in bad-debt risk.
The situation ultimately prompted emergency intervention efforts from Ethereum co-founder Joseph Lubin, crypto entrepreneur Justin Sun, blockchain infrastructure firm LayerZero, and Mantle to prevent broader contagion. The FT said the episode highlighted how an industry built around decentralization still relied heavily on a small circle of influential individuals and companies during crises.
Adam Morgan McCarthy of crypto analytics firm Kaiko told the FT that while the industry promotes decentralization, in practice “a small group of insiders are effectively supporting one another’s businesses.”
DeFi refers to blockchain-based financial services operated through smart contracts without intermediaries such as banks or brokerages. The sector surged during the so-called “DeFi Summer” of 2020, with the market at one point swelling to about $180 billion. However, repeated hacks and security breaches have since reduced the market to roughly $86 billion.
Industry observers say the latest incidents are now threatening the very principles of security and transparency that DeFi has long promoted. Lucas Cheyan, a researcher at crypto research firm Galaxy, told the FT the hacks weaken claims that cryptocurrencies are safer and more transparent than conventional finance.
Market sentiment has also deteriorated sharply. Aave’s token price has fallen about 20% since April 18 and is down nearly 50% over the past year.
Some platforms, however, continue to post growth despite the turmoil. The FT cited trading platform Hyperliquid, which benefited from increased oil derivatives trading following conflict in the Middle East, and prediction-market platform Polymarket as notable examples.
Still, Polymarket itself has come under regulatory scrutiny over allegations of insider trading and suspicious transaction patterns. U.S. authorities recently charged a military servicemember accused of trading on information tied to the capture of a Venezuelan leader. Following the incident, Polymarket said it had partnered with outside analytics firms to strengthen monitoring efforts.
The FT warned that the hacking wave could further deepen distrust of the crypto industry among U.S. lawmakers and regulators. The U.S. Senate is already discussing legislation that would limit government bailouts for the crypto sector in the event of a collapse, while debates continue over the legal liability of DeFi developers.
Meanwhile, advances in artificial intelligence and quantum computing are emerging as additional threats. Friederike Ernst, co-founder of decentralized technology firm Gnosis, told the FT that hackers have become increasingly sophisticated in identifying vulnerabilities and that AI may already have been used in recent attacks. “The current DeFi ecosystem still lacks sufficient safeguards,” Ernst said.