The rise of Web3 has created endless opportunities for innovation and adoption of decentralized technologies, but it has also brought a new set of challenges regarding security. With the increased usage of Web3, the ecosystem has become an attractive target for malicious actors, leading to a significant increase in Web3 hacks throughout 2022. In this article, we will explore our 2023 report, where we tackle the top three reasons behind Web3 hacks and how proactive security measures safeguard Web3.
The rapid growth of Web3 has created numerous opportunities and possibilities for individuals and businesses alike, leading to innovation and increased adoption of decentralized technologies. However, the surge in Web3 usage has also attracted the attention of malicious actors.
As seen in the chart above, from the Cyvers Web3 Security Report, smart contract hacks largely dominate regarding hack type and cause. If we look at it from a bigger picture, there can be many reasons for it. All decentralized applications comprise of smart contracts, a common risk factor across the entire DeFi sector. This and the fact that any innovative DeFi product usually involves several degrees of complexities make up many of the reasons for smart contracts topping the “list”.
Smart contracts are the backbone of many DeFi and Web3 applications, automating transactions and enforcing agreements without intermediaries. However, as powerful and revolutionary as smart contracts are, they are also susceptible to vulnerabilities that can be exploited by hackers. The investigations indicate that 50% of all Web3 hacks in 2022 were due to smart contract exploits, often from coding errors, untested code, or a lack of proper auditing. Keep in mind, this does not mean a lack of auditing, as 50% of the hacked smart contracts were audited. While no protocol had implemented real-time monitoring.
To mitigate the risk of smart contract hacks, developers should not only properly audit their code multiple times, but ideally, they should try to be in the position of the hacker and “try to hack their own protocol” so that they actually find the loopholes in their code.
Irrespective of this, even if a protocol is audited or not, real-time monitoring is a powerful strategy to prevent decentralized applications that do get attacked.
As shown in Cyvers Web3 Security Report, many of the top hacks had multiple minutes to hours of attack duration after the initial alerts by the Cyvers system. This would give developers and founders enough time to react, pause contracts, move funds, and protect their Dapp.
Flash loans, a unique DeFi innovation, allow users to borrow and repay funds within the same transaction, providing new opportunities for arbitrage, liquidations, and other financial strategies. However, the growing popularity of flash loans has also made them an attractive target for hackers. Our research shows that 20% of all Web3 attacks in 2022 were due to flash loan exploits, often taking advantage of vulnerabilities in smart contracts and the complex interactions between DeFi protocols. To address this issue, developers should analyze and understand the potential risks associated with flash loans and thereby design smart contracts to withstand such attacks.
Flash loan attacks also include deploying malicious smart contracts, which are often, if not always, detected by the Cyvers system instantly. The alerts usually occur 1 minute to 2-3 hours before the actual attack happens.
Social engineering is one of the most prevalent types of attacks in the Web3 space. These attacks often exploit human behavior and emotions to deceive individuals into disclosing sensitive information, such as private keys or other access credentials. In the Cyvers Web3 Security Report, we found that many successful attacks can be attributed to social engineering tactics, including phishing schemes, impersonation, and fake giveaways. To combat this threat, user education and awareness must be prioritized, and multifactor authentication should be implemented wherever possible.
As the Web3 ecosystem evolves, so do the tactics and techniques employed by hackers and exploiters. Cyvers is committed to preventing hacks and exploits before they happen. By employing a proactive security strategy, we help safeguard the integrity of the Web3 ecosystem and ensure that users can confidently participate in the decentralized economy.
As we analyzed the three major reasons for hacks in Web3, proactive security is perhaps the most successful way to prevent them. With social engineering, there is no single solution involving education and off-chain security measures.
All-in-all, Cyvers advanced anomaly detection and real-time monitoring capabilities are at the core of Cyvers' Web3 security solution. By continuously analyzing the blockchain and identifying unusual or suspicious activities, we can quickly alert our clients to potential threats and help them take appropriate action before it occurs.
Our state-of-the-art technology leverages machine learning, artificial intelligence, and advanced topological AI to detect anomalies and respond to security incidents more efficiently, minimizing the risk of hacks and exploits. If you want to read more about the Cyvers solutions, check out: “Why Proactive Security is the Missing piece for Web3 Adoption”!