Promises and pitfalls

Amid the current enthusiasm for all things crypto, interest in decentralized finance (DeFi) has exploded. Proponents think it will help democratize finance. But fraud is running rampant in this corner of the market. Here’s how it works and why fraud examiners should be paying attention.

On Oct. 14, 2021, Andean Medjedovic, a teenage math whiz studying at the University of Waterloo in Canada, exploited a flaw in the coding of Indexed Finance, a decentralized application for passive portfolio investments. In the process he lifted close to $16 million in token assets, shocking the founders of the startup and setting the stage for a legal fight over what constitutes fraud and the reach of law enforcement in the digital asset world.