DeFiance Capital Founder Loses $1.7M in NFTs To Phishing Scam

The founder of DeFiance Capital, Arthur Cheong, has had roughly $1.7 million in NFTs lifted from his crypto wallet early Tuesday morning. 

The pieces stolen included five CloneXs, 17 Azukis, 33 Second Selfs, two Hedgies, and two Tsubasa NFTs, according to security firm PeckShield. The firm reported that approximately 59 NFTs were stolen in total. 

"Well, this hit me hard but if I got exploited as a fairly sophisticated 5 years crypto user (DeFi user, password manager, mostly hardware wallet), I'm not sure how I can persuade most normal people to put a substantial part of their net worth on chain anymore," tweeted Cheong. 

The venture capitalist added that the "likely root cause" was through a spear-phishing email that appeared to be from one of DeFiance Capital's portfolio companies. Upon opening the file, the attacker allegedly gained access to the private key of one of Cheong's hot wallets. 

Etherscan, a crypto tracking service, has already labeled the crypto address in question as the "Arthur0x Wallet Hacker." The address currently holds more than 585 Ethereum at press time. 

A "hot" crypto wallet is one that is connected to the internet at all times, making them especially vulnerable to attacks. 

They are convenient for transferring funds around, but as today's events reveal, they are not ideal for storing large amounts of crypto safely. Conversely, "cold" crypto wallets are wallets that are not connected to the internet; they include paper wallets and hardware wallets, which are physical devices that often resemble USB sticks and remain offline. These aren't hack-proof but offer a better degree of security than hot wallets.

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NFTs’ bumper year

It's telling that an experienced DeFi enthusiast had jumped aboard the latest NFT wave.

"Was pretty careful and stuck with only using hardware wallet on PC until I start trading NFT more regularly," wrote Cheong. 

But given the rise in popularity of digital collectibles, it isn't a surprise.

Large brands ranging from Taco Bell to Budweiser have all joined the craze, while celebrities have also become NFT collectors. Football star Tom Brady has even launched an NFT marketplace called Autograph, with backing from Andreessen Horowitz. 

If not for their growing popularity, a recent report from Nansen also indicated that NFTs might be inversely correlated to the broader crypto market. However, this correlation only appears when the NFTs are denominated in Ethereum. 

If anything, the recent heist of a crypto-native should serve as a reminder to remain diligent no matter which market slice users are exploring.