Three Key Risks Faced by Crypto Asset Managers

The decentralized and pseudonymous nature of the crypto space presents its own set of challenges and risks for crypto asset managers.

Among these, three key risks stand out for their destructive force: private key exploits, financial risks, and protocol security breaches.

$112.5 million was lost in a private key exploit by Chris Larsen, chairman of Ripple, in January 2024.

Private key exploits were the most damaging hacks for the crypto space in 2023, resulting in $765 million lost through 27 incidents targeting every typology of crypto actor. They concern retail investors, crypto asset managers, and crypto companies.

Between 2022 and 2023, private key exploits led to a staggering $1.6 billion loss, a literal bloodbath. If private key exploits are one of the most commonly used exploits, it’s because they represent the surest route to scoring big in the crypto space for hackers and scammers alike.

Private keys are the only information required to authorize transactions and move digital assets away from their owners’ wallets.

Danger comes in various forms, from brute force attacks targeting password managers to sim-swap attacks or even from a fake journalist interviewing you or a fake recruitment for a member of your team that will end up leaking your private keys.

Delve into our breakdown report on private key exploits here:

Learn how to secure your and your company's crypto wallet’s private keys:

Counterparty crypto companies, due to the extremely volatile nature of the crypto space, face heightened credit risk, market risk, and liquidity risk compared to traditional companies.

Additionally, they themselves pose financial risks if involved in illegal activities.

The year 2022, unfortunately, provided stark illustrations of bad actors proliferating in the crypto space. Once-powerhouses like Celsius Network, Voyager Digital, FTX, Terra/Luna, and others collapsed under the weight of their own misdeeds, dragging down the entire crypto market with them.

Wash trading and insider trading are widespread diseases in the crypto space.

It has been revealed that 56% of crypto token listings show evidence of insider trading, a significant contrast to the already excessively high figures for stock-based insider trading: 5% for earnings announcements and 20% for mergers and acquisitions, as reported by researchers at the University of Technology Sydney.

Regarding wash trading, the Centre for Economic Policy Research (CEPR) unveiled in its April 2023 analysis that over 70% of reported volume on unregulated crypto exchanges consists of wash trading, with some newly established exchanges faking more than 90% of the reported volume. Additionally, more than $2 billion has been wash traded through decentralized exchanges in the past three years.

Read more on those subjects here:

In 2023 alone, 309 crypto fraudulent projects were recorded, resulting in a $3.24 billion loss.

Too often, smart contract audits are understood as a stamp of legitimacy approval, something that scammers have caught onto early and turned into a tool to entrap unsuspecting investors into investing in their bogus projects.

If you wish to understand the intricacies of how smart contract audits are used to scam investors, we have investigated the subject here:

The crypto space has been heavily plagued by security breaches since its inception, but especially since the 2020 crypto boom.

Almost $5 billion has been stolen in the past two years alone, with hundreds upon hundreds of crypto firms falling victim.

Some of those hacks have signed the death warrant of their victims, such as Rari Capital, which lost $80 million to a reentrancy attack.

It’s crucial, given the onslaught crypto companies face, to ensure that the company you invest in has taken the necessary actions to protect themselves against security breaches of all sorts.

Basic measures that should be undertaken include:

1.Recruiting a strong team of developers capable of writing high-quality code, ensuring from the beginning that the possibility of security breaches will be quasi non-existent.

2.Smart contract audits from independent and knowledgeable auditors such as Halborn, Certik, Hacken, etc., to conduct penetration testing and smart contract analysis to identify and fix security vulnerabilities.

3.Implementing strong cybersecurity practices, such as providing high-level education on cyber attack risks to every member of the company to prevent hacking, phishing, and ransomware attacks, especially private key exploits.

4. A high level of data encryption, as well as toughened processes to restrict access to internal systems and data.

5. A bug bounty program to ensure continued awareness of old and new vulnerabilities.

6. An alert reporting system, as well as an incident response plan to respond to security breaches.

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Nefture core services include Real-Time Transaction Security and a Threat Monitoring Platform that provides accurate exploit detections and fully customized alerts covering hundreds of risk types with a clear expertise in DeFi.

Today, Nefture proudly collaborates with leading projects and asset managers, providing them with unparalleled security solutions.

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