Crypto Lost the Revolution and Won the Plumbing

North Korea just hacked close to $300M out of a DeFi protocol. It's the latest saga in the endless string of crypto hacks, but this one is pretty large.

To put it in context: the North Koreans have stolen around $300M this year alone, and they're sitting at $7B since they began. These guys are funding a part of their nuclear program by siphoning money out of crypto.

Not good.

DeFi is the same as traditional finance, except instead of trusting men in suits who fear jail and whose every move is being observed by a bureaucrat, you're trusting some risk-seeking 20 something year-olds with a few lines of code.

And what's funnier is that, for all the talk of "decentralisation," the hackers basically just needed to impersonate one person to get access to that $300M.

If you've lost money in crypto in the past and you're reading headlines like this wondering where it all went wrong, it wasn't your fault. You were just way too early. The whole crypto space was held together with duct tape in a lot of places. Losing money on an experimental new asset class that was effectively three years old is not a failing. You just showed up too early.

The current financial system was set up very effectively. Crypto people love to dismiss intermediaries like banks, custodians, clearing houses, and regulators like they're pure friction.

That's kind of the point, because they do add friction. They add friction in exchange for safety, so you can have some assurance that you're not going to wake up one day and find your life savings siphoned off by a 22-year-old in Pyongyang.

Imagine North Korea trying to hack the DTCC.

It's not going to happen. It's basically impossible. You'd have to work through intermediaries, there are sophisticated systems in place to protect against exactly this, there are humans in the loop, regulators breathing down everyone's neck. What crypto people call "inefficiency," the rest of the world calls "not losing $300M in a weekend."

In DeFi, you have a few lines of code and a smart contract. That's the entire defense.

But here's where I want to pivot, because that doesn't mean the whole thing is a waste of time.

The story has changed.

A few years ago, crypto people were trying to build an alternative financial system run on code and smart contracts. That version mostly failed, and the hacks are a pretty good exhibit for why.

But now BlackRock is tokenising funds, JPMorgan settling trades on-chain (I've been talking with the data guys who are helping to process these), every bank now has a program to use stablecoins for deposits, and the NYSE is moving to 24/7 trading by the end of the decade.

The existing financial institutions are using this tech to improve the existing system, not replace it.

That's the real deal. Not the "I'm my own bank" fantasy that keeps getting drained by North Korean hackers. The quieter, more boring integration of blockchain into a financial system that still has intermediaries, still has regulation, still has accountability.

The friction is a feature. The tech is still interesting. And you can hold both of those ideas at the same time.

Best,

Louis Sykes
Senior Crypto Analyst, All Star Charts