Advanced Learning Concept: Smart Contract Fraud in Decentralized Finance (DeFi) Applications

By: Isha Das

Shakeeb Ahmed, a software engineer, recently made a legal history by pleading guilty to being behind the first conviction for smart contract fraud in relation to decentralized finance (DeFi) applications, as confirmed by the United States Attorney for the Southern District of New York. This comes after Ahmed was found guilty of hacking and exploiting two DeFi applications resulting in a loss of over $12 million.

In a bid to hide his illegal activities, Ahmed used a range of tactics, including swapping his gains for Monero (XMR), making transactions on international crypto exchanges, moving assets through crypto mixers such as Samourai Whirlpool, and transferring funds to the Ethereum blockchain.

The first attack saw Ahmed target an unidentified decentralized exchange on July 2, 2022, where he generated $9 million through inflated fees. Only a few weeks later, he made a successful attack on Nirvana Finance, a Solana-based DeFi platform, and managed to gain $3.6 million from the market manipulation of ANA tokens through smart contract vulnerabilities.

The case highlights the new challenges and risks associated with DeFi and blockchain technology. It also underscores the importance of strengthening security measures to ensure the integrity of smart contracts, thereby protecting users and their funds from potential threats.