The bear market has a lot of impact on investors depending on the assets they invest in. For untested markets such as the decentralized finance (DeFi) market, the impact can be exacerbated. Space is already full of many issues surrounding anxiety. But when the bear market comes, you’ll think that reduced participation will discourage attackers. However, it may be a more dangerous time than the bull market.
Bear market involves risks
Industry experts highlight the risks that may lead in the DeFi space of such a bear market. Tim Ismiliaev, Apostro, founder and CEO of the DeFi project’s risk management and security platform, has revealed that this space may be at a time of future challenges.
Over the past year, the DeFi protocol has been rocked by various exploits and operations, and Ismiliaev points out that it can be exacerbated in the bear market. Primarily, it has to do with reduced spatial liquidity that leaves the protocol vulnerable to market operations.
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The founder told Bitcoinists that the reduced liquidity of the bear market would make it easier to manipulate the target market. why? Due to the fact that the crypto winter / bear market takes significantly less time to carry out such an attack than the bull market.
“This obvious vulnerability means that it’s much easier to execute exploit vectors due to price fixing and oracle attacks,” said Ismiliaev. “Projects with low market capitalization tend to respond more quickly to price impacts, and hackers provide excellent leverage to drain funds from such protocols.”
He said he needed a more solid solution as to what he could do to avoid such a situation. This can be achieved “with proper decentralization that helps mitigate the intrusion of attackers,” Ismiliaev added.
DeFi market cap declines to $43.1 billion | Source: Crypto Total DeFi Market Cap on TradingView.com
DeFi market is suffering
The bear market is probably affecting DeFi space to a greater extent compared to other niches. In the first half of 2022 alone, DeFi TVL totaled more than $ 156 billion and is now $ 77.74 billion. This decline negatively impacts the protocols that exist in this niche and lacks liquidity.
Exploits have not been mitigated, even though protocols such as Harmony and Crema Finance have succumbed to various attacks. The Harmony Protocol saw $ 100 million stolen from the platform when hackers were unable to recover funds by exploiting the vulnerability.
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Meanwhile, Cream Finance lost $ 8.78 million to the attackers. However, the hacker returned $ 8 million after the DeFi protocol suggested that the hacker hold some of the money. That’s a total of $ 1.2 million in SOL.
These attacks and the myriad instances of market operations on DeFi support Ismiliaev’s belief in the security available to users. For DeFi to continue to be successful, we need to take more effective security measures to protect our users’ funds.
Featured image from StormGain, charts from TradingView.com
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