The evolution of DeFi security (and what comes next)

Introduction

The crypto industry has been chaotic over the past three years, with a constant stream of innovation, threats, scams, and security breaches. The Decentralized Finance (DeFi) market revenue is projected to hit $376.9 million by the end of 2025. But as DeFi grows, so do security risks for both decentralized protocols and centralized exchanges (CEXs).

Projects have been exploited, hardened and rebranded –  for example: Infini, shifted their positioning after earlier incidents; others, like Ionic Money (formerly Midas), suffered multiple exploits before and after rebranding in 2023 and 2025. In Q1 2025, several prominent names in DeFi and CeFi, including Bybit, Phemex, Infini, and Ionic, found themselves back in the headlines despite prior assurances of robust security.

But this wasn’t just another quarter of crypto chaos. It marked a historic turning point. Bybit’s $1.46B hot wallet breach became the largest known loss in crypto history, while a surge in private key leaks and third-party compromises revealed alarming supply chain vulnerabilities.

Looking back from Q1 2023 to Q1 2025, a pattern emerges but so does progress. We've seen:

A steady shift in attack types, from smart contract bugs and flash loans to state-sponsored hot wallet breaches such as the February 2025 Bybit exploit attributed to North Korea’s Lazarus Group.

This report isn’t just a breakdown of incidents, it’s a blueprint for what happens when you don’t evolve your security posture fast enough. And perhaps more importantly, it’s a guide for you to understand how to move forward — with smarter defenses, customized safeguards, and purpose-built security for your project that adapts as fast as the attackers do.

Q1 2025: A historic quarter for all the wrong reasons

Evolution of attack vectors & security - then vs. now: What’s changed since Q1 2023

How web3 security is diverging from web2 norms

As Web3 develops, there is an opportunity to further adopt best practices from web2 security frameworks, but there is also a need to accommodate web3 protection models, as well. Some protocols are still behind on fundamental security measures such as access control and user education, while others are already addressing threats that traditional Web2 systems have never faced.

The core difference is this: Web2 uses centralized control, while Web3 is decentralized. This shift creates new security issues - wider attack surfaces, quicker attacks, and permanent damage if not handled correctly.

Organized and coherent responses to attacks is the new standard for security. Those who will be successful in Web3 security are those who build dynamic defenses into every part of their systems, instead of only reacting to attacks after they happen.

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Key trends we’re seeing in 2025

Positive shifts

• DeFi 2.0 is making improvements in the DeFi space by implementing smarter governance systems and improved controls for managing liquidity.
• AI-Driven security: Tools like Forta and LLM-based audits using chatGPT, Claude, DeepSeek and others provide faster identification of threats.

• Improved CEX defense: To better protect themselves, centralized crypto exchanges are increasingly adopting cold storage and multi-signature wallets.
• Collaborative security: We are seeing growing coordination and information sharing among security experts and projects.

Negative shifts

• Advanced threat actors:  The involvement of nation-state groups like Lazarus Group in these attacks raises the stakes and sophistication of the threats faced by crypto projects.
• Increased complexity: The growing interconnectedness of the crypto ecosystem through cross-chain integrations and fund pooling creates a larger and more intricate attack surface for hackers to exploit.
• Poor recovery rates: The consistently low rate of recovery of stolen funds highlights the urgent need for more effective and robust incident response strategies and solutions.

Emerging attack vectors

• Hot wallet breaches: The Bybit and Phemex incidents highlight the ongoing risks associated with centralized infrastructure, showing that hot wallets remain a vulnerable point for attacks.
• Admin privilege exploits: The Infini breach underscores the critical need for strong operational security measures to prevent unauthorized access to administrative controls.
• Smart contract bugs & flash loans: These continue to pose a significant threat as DeFi architecture evolves, as demonstrated by the zkLend Protocol Exploit, showing that smart contract vulnerabilities and flash loan attacks remain persistent concerns.
• Supply chain attacks on browser extensions: The AdsPower incident demonstrates the risks of compromised third-party tools, highlighting the need for enhanced security measures in the browser extension supply chain.

Guardrail's insight: What 2025 is really telling us

At Guardrail, we view Q1 2025 not as a failure — but as a turning point. A time when the crypto industry finally saw that patchwork security and one-time audits are no match for fast-evolving threats.

That’s why the future of security needs to be:

• Comprehensive: This means it should cover all aspects of your system, including smart contracts, infrastructure, keys, governance, and tooling. It's not enough to just focus on one area, as attackers will find and exploit any weaknesses they can.
• Continuous: Security should be always-on, with real-time, context-aware detection. Threats can emerge at any time, and a quick response is crucial to minimizing damage.
• Custom-fit:  Your security measures should be tailored to your specific economic model, architecture, and protocol logic. A one-size-fits-all approach won't be effective in the long run, as each project has unique vulnerabilities.

At Guardrail, we don't do one-size-fits-all rules because each project is unique and can have unique vulnerabilities specific to their business. Security must be tailored to each product's needs and we believe in it.

Our core security measures include:

• Multisig enforcement & privilege control management.
• Proactive monitoring for continuous smart contract security.
• Regular smart contract audits.
• Economic risk assessments.
• Third-party integration awareness.
• Incident response plan, drills & team education.

We’re not just another dashboard. 

We partner with you deeply to embed security across your protocol’s lifecycle and within your existing infrastructure sets

Why you can’t afford to rely solely on audits anymore

If there’s one lesson from the last three years — and especially from Q1 2025 — it’s this: security can’t be a checkbox. Not anymore.

Attackers no longer limit themselves to code. They target supply chains. They phish keys. They hijack admin roles. And they move faster than ever before.

That’s why at Guardrail, we’ve built a different kind of defense — one that understands your protocol, watches it evolve, and grows with it. In fact, setting up real-time protections takes just a few clicks. 

In our demo, you can see how easy it is to configure custom guards like monitoring for sudden balance drops — by simply selecting your smart contract, token address, and threshold values. Alerts appear instantly in a dedicated tab, giving you fast, actionable visibility where it matters most.

We build custom security that fits your protocol, not the other way around.

Schedule your DeFi security consultation with Guardrail and proactively build a custom security strategy that anticipates and neutralizes emerging threats for your protocol.