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Chainalysis: Hodlers prefer DeFi centralised exchanges because of security

by Chief editor

Cryptocurrency investors are choosing centralised exchanges (CEX) over DeFi instruments, according to a new report from Chainalysis.

Crypto investors are choosing CEXs because decentralised exchanges are still very vulnerable to the threat of hacking. This is according to a joint report by blockchain data company Chainalysis and exchange Bitfinex, published on 13 October.

According to the study, the number of CEX hacks has dropped significantly over the past few years, while more DeFi platforms are being attacked by hackers.

The total value of assets stolen from centralised crypto platforms in 2021 was $413; a 58% drop from 2018, when fraudsters took out $972, according to Chainalysis. In 2022, $80 million was stolen from centralised cryptoplatforms.

In contrast, DeFi-protocols are hacked almost every day, with the size of losses in 2022 already reaching $2.2 billion – that’s 96% of all losses in the crypto market.

Kim Grauer, director of research at Chainalysis, noted that CEXs are no longer prime targets for hackers as they were in the early days of the crypto industry, as such platforms have made significant strides in security and compliance with regulators who stand up for investor protection.

“In our research, we found that many cryptocurrency fundamentals have been remarkably stable this year despite the market turmoil,” said Grauer, adding, “Hoarders are holding cryptocurrency and, for that matter, we have seen an increase in cryptocurrency accumulation by long-term holders. Most of this cryptocurrency is held on centralised exchanges.”

Bitfinex chief technology officer Paolo Ardoyno also pointed to the growing resilience of centralised exchanges to hacking attacks. Ardoyno once again advised investors to use hardware wallets to store cryptocurrencies:

“My advice for those holding bitcoin and cryptocurrencies is to keep them in a cold wallet… However, with the advent of 2FA and other stricter security measures, CEXs are becoming safer places to store cryptocurrencies.”

Despite DeFi’s massive vulnerability to hacks, Ardoyno still sees DeFi as an interesting trend that could contribute significantly to the overall growth of cryptocurrency.

“The growth of DeFi is comparable to the growth of natural systems in nature,” he said, adding that the DeFi sector will “inevitably grow and thrive as the technology evolves and new communities are brought into this space.”

He stressed that security remains “a big challenge for DeFi protocols”.

Hackers recently attacked TempleDAO, DeFi’s cryptocurrency farming protocol. Attackers withdrew more than $2.3 million from the protocol on 11 October.

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