Crypto Industry Sheds $685.5 Million in Q3 2023

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By A D

Alongside the meteoric rise and transformative potential of crypto, a darker narrative is unfolding. The cryptocurrency market has lost nearly $1 Billion in 2023 to a series of high-profile hacks and exploits. Web3 lost over $685.5 million to various security breaches, phishing scams, and rug pulls in the third quarter of 2023 alone. This marks a concerning increase of 59.9% compared to the losses recorded in the previous quarter. Furthermore, year-over-year, the industry has seen a staggering 153% rise in security incidents.

Mixin Network and Multichain were among the hardest-hit, losing a combined $326 million due to hacks. These incidents accounted for nearly half of all losses recorded in Q3. Mixin Network suffered a $200 million exploit in September, while Multichain reported a loss of $126 million in July.

crypto/blockchaoin firms multichain and mixin(logos in photo) suffered the most losses
Mixin Network and Multichain were among the hardest-hit.

Ethereum emerged as the most targeted blockchain, enduring 35 individual attacks, followed by BNB Chain with 25 incidents. Other chains, including Base, Optimism, Polygon, Avalanche, Arbitrum, zkSync Era, Fantom, and Solana, also experienced attacks.

Hacks emerged as the central theme of this quarter’s losses, accounting for a staggering 96.7% of the total losses. Crypto hacks and rug pulls witnessed a substantial increase of 30-40% in the third quarter of 2023, with bad actors successfully erasing $889.26 million in capital. Biosin, the blockchain security firm, reported a boost of 35% to 40% in crypto hacks during this period.

One name that dominated the headlines was the Lazarus Group, a North Korean state-sponsored hacking collective notorious for its audacious heists. They managed to abscond with a substantial $208.6 million, accounting for 30% of the total Q3 losses. Their sophisticated tactics, including the exploitation of LinkedIn to target a Spanish aerospace firm, demonstrated the evolving strategies of state-backed actors. This state-affiliated hacking group, believed to have the support of the North Korean government, continued its activities in the third quarter, targeting platforms like CoinEx, Stake, Alphapo, and CoinsPaid.

Read: US Treasury Report: North Korea and Scammers Using DeFi to Launder Dirty Money – Regulation Incoming?

the extent of loss in crypto assets to the lazarus group
Lzarus is responsible for a large chunk of this spectable, the thefts spread across various firms. Image Source: Immunefi

Private key compromises came out as one of the most damaging exploits, accounting for over $204 million across 14 incidents, the highest among attack types. The Multichain incident, where a project’s CEO had exclusive control of private keys, showcasing the risks of centralised control. Overally, centralised platforms reported losses amounting to $185.7 million, marking an alarming 3,400% increase from the previous year’s Q3 figures.

Decentralized Finance (DeFi) bore the brunt of the attacks, accounting for a significant 67.4% of all cases. Specifically, there were 29 reported attacks within the DeFi sector. Public chains, on the other hand, faced the most substantial losses in this period. They suffered losses amounting to a staggering $499.8 million, constituting a worrisome 72.9% of the total losses recorded in Q3.

comparision between the losses suffered by defi vs cefi
DeFi saw a larger percentage of attacks, whilst CeFi saw an alarming growth in the percentage of attacks as compared to 2022. Image Source: Immunefi

Major Hacks in Q3 2023: 

  • Mixin Network ($200 Million): On September 25, 2023, Mixin Network experienced one of the biggest hacks of the quarter, resulting in a loss of $200 million. 
  • Curve DeFi Ecosystem ($73 Million): Vulnerabilities in the coding language of Curve’s decentralised finance ecosystem led to a $73 million hack on July 30. Negotiations with hackers recovered $53 million. 
  • CoinEx Exchange ($70 Million): On September 12, CoinEx exchange suffered a hot wallet breach, resulting in losses across 211 chains totaling $70 million due to a private key compromise. 
  • Alphapo Crypto Payment Service ($60 Million): On July 23, the hot wallet of crypto payment service provider Alphapo was stolen, causing losses of $60 million, allegedly orchestrated by North Korea’s Lazarus group. 
  • CoinsPaid Crypto Payment Platform ($37.3 Million): A group of hackers meticulously broke the firewall of CoinsPaid, stealing $37.3 million in assets over six months, employing various attack methods.
Mixin Network’s “bug bounty” did not seem to help their case.

Concerningly, $360 million, or 67% of the stolen funds, remained in hacker addresses, making recovery efforts challenging. Despite the grim statistics, 8.9% of the total losses in Q3 2023, about $61.2 million was recovered from stolen funds in six specific cases. Among these, Curve Finance was successful in retrieving $5.3 million out of the $24 million stolen. Notably, Mixin Network has offered a $20 million “bug bounty” in an attempt to recover their stolen funds, but its success remains pending.

What’s Happening in the Larger Crypto Scene?

The crypto market is undeniably in a state of flux. Trading volumes are down, settlement volumes have decreased, and there’s a palpable lack of enthusiasm.

the chart for the overall market cap of the crypto market
Despite trading volumes being down and settlement volumes experiencing a decrease, the overall cryptocurrency market cap remains resilient. Image Source: CoinMarketCap

Q2 began with both hype and uncertainty. After an impressive Q1 performance, the crypto industry faced the question of whether the momentum would continue. The year had already seen its fair share of challenges, including the banking crisis and economic impacts of events like the US’s March turmoil.

Bitcoin and Ethereum experienced some similarities in their performance, notably in April and May. However, the significant event that disrupted the trajectory was a BlackRock announcement about a Bitcoin spot ETF. This news had a substantial impact on market sentiment and direction.

Read: BlackRock Files Application for Bitcoin ETF

An exceptional highlight amid the turbulence was Ethereum’s deflationary mechanism. Unlike most blockchains, Ethereum’s circulating supply decreased because it was actively used and “burned.”

A significant factor influencing crypto’s direction in Q2 was regulatory scrutiny. The SEC’s actions against Binance, Coinbase, and the Ripple lawsuit all contributed to market uncertainty. Binance’s aggressive practices and regulatory challenges seemed to be intensifying, creating concern within the industry.

Read: Binance vs. SEC

Miners played a role in the recent price decline, with data indicating significant sell-offs. It’s important to note that the exact extent of miner-driven selling remains uncertain, but this trend added to market pressures.While some speculate that miners are attempting to time the market, it’s essential to consider that miners are primarily focused on maximising their profits, which may involve periodic selling.

It’s crucial to recognize that while it may feel like crypto prices are in a prolonged downtrend, the reality is that they have been largely moving sideways over the past few months. A bear market is characterised by tedious sideways movement, and that’s precisely what we’ve been experiencing.

It’s important to keep in mind that sideways movement doesn’t necessarily equate to a further price decline. It means that the market is consolidating, waiting for a catalyst that could drive the next significant move.

As we look to the future, two key factors stand out: the potential approval of Bitcoin and Ethereum spot ETFs and ongoing regulatory developments. These factors could either reinvigorate the crypto market or prolong the current uncertainty.

Three significant events are expected to exert price pressure in the coming months:

  • Binance Regulatory Saga: The ongoing regulatory scrutiny of Binance could lead to further market uncertainty, depending on the outcomes of investigations and potential actions taken.
  • US Government Bitcoin Holdings: If the U.S. government decides to sell its Bitcoin holdings, it could create significant downward pressure on prices. The extent of this potential sale remains uncertain.
  • Bitcoin Spot ETFs: The approval and launch of Bitcoin Spot ETFs in the U.S. market could be a game-changer. It has the potential to trigger a surge in demand and send prices soaring.

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