FBI Issues PSA on DeFi Hacks; House Oversight Requests Info from Regulators, Exchanges; Fed to Roll Out Payments Service
DEF Weekly Roundup - September 2, 2022
FBI Issues PSA Warning Investors of DeFi Smart Contract Hacks
On Monday, the FBI issued a public service announcement to warn DeFi users and investors of the risks associated with DeFi smart contracts and their potential vulnerabilities.
The announcement said, “...cyber criminals [are] increasingly exploiting vulnerabilities in DeFi platforms to obtain crypto…,” and later specifically mentions complex, cross-chain bridges being a primary target of hackers. It cites Chainalysis’ data on DeFi hacks which revealed that 97% of the $1.7 billion in cryptocurrency lost to hacks between January to March of 2022 was on DeFi protocols.
The announcement concluded by offering the following recommendations to DeFi developers to prevent future hacks:
Real time analytics, monitoring, and rigorous testing of the code to identify vulnerabilities and respond to indicators of suspicious activity; and
Develop and implement an incident response plan to alert investors when a breach has occurred or been detected
What does this mean?
Major hacks like the Ronin bridge hack were cited in the press release announcing the Tornado Cash sanctions, and the FBI issuing a (technically sophisticated) DeFi-specific PSA reflects law enforcement’s concern, not only for the monetary losses but also what those stolen assets can be used for.
House Subcommittee Chair Requests Info from Top Regulators on Consumer Protection and Crypto
On Tuesday, Rep. Raja Krishnamoorthi (D-IL), Chairman of the House Oversight Committee’s Subcommittee on Economic and Consumer Policy, announced that he distributed letters to the chiefs of the Treasury, SEC, FTC, and CFTC asking each what they are doing to protect consumers in the crypto space and what, if anything, Congress can do to help. Letters were also sent to several centralized exchanges including FTX, Kraken, and Binance.
In the letters, Rep. Krishnamoorthi raised several concerns over the lack of protections in place to shield investors from harm. “The lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers have of the underlying technology make cryptocurrency a preferred transaction method for scammers,” Krishnamoorthi wrote.
The letters went on to ask agencies and companies to supply any data or information that would assist Congress in their efforts to draft effective legislation. The respondents were given until September 12th to provide their answers indicating a degree of urgency from House Democrats to pass legislation before the November midterms.
Krishnamoorthi specifically asks the addressees for an answer to the million dollar question: Are cryptocurrencies securities? Commodities? Both? Explain.
What does this mean?
Not much for DeFi specifically, but this serves as yet another indicator of increased congressional interest in crypto and that federal legislation is probably on the way. Not any time soon, though, in our opinion.
Fed Vice Chair Lael Brainard Announces FedNow Payment Service Roll Out
In a speech on Monday, Federal Reserve Vice Chair Lael Brainard announced that the FedNow Payment Service is set to be up and running in mid-2023.
The software has been advertised as an instant payment service for consumers and businesses to use. In the words of the Vice Chair, “The FedNow Service will transform the way everyday payments are made throughout the economy, bringing substantial gains to households and businesses through the ability to send instant payments at any time on any day, and the funds being immediately available to recipients to make other payments or manage cash flow efficiently.”
In her speech, Brainard encouraged financial institutions to adopt the beta version of the software now in order to test its resilience and features. Supporters of the service claim that adoption would lower transaction costs, speed up settlement time, reduce systemic risk in banking, and promote financial inclusion.
What does this mean?
FedNow’s long-awaited launch would bring faster settlement to the United States and probably further undermines the case for a CBDC. Vice Chair Brainard has said in the past that while the US government launching a CBDC is possible in the future, it won’t happen for at least five years.
As we’ve written before, CBDCs are “tabula rasas” that can be designed to replicate the unique features of cash transactions or to create a potent tool of mass surveillance and coercion—and everything in between. They’re controversial. There is significant debate in Congress on the merits of issuing a CBDC, and several of the reports delineated in this year’s executive order (several due September 5, but don’t hold your breath) on digital assets are focused on CBDC issues.
Thanks for reading DeFi Education Fund's Newsletter! Subscribe for free to receive new posts and support my work.