Why most crypto projects collapse after major security breaches

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Yaroslav Dmytrenko

18.01.2026

Why most crypto projects collapse after major security breaches — Nearly 80% of hacked crypto projects never fully recover

Nearly four out of five crypto projects affected by major hacks never fully recover, as security breaches not only drain funds but often destroy trust.

According to Mitchell Amador, CEO of Web3 security platform Immunefi, the first hours after a hack are often the most devastating. Most protocols enter a state of paralysis once a vulnerability is discovered. Without a predefined incident response plan, teams hesitate, debate next steps, and underestimate the potential scale of the exploit.

“Decision-making slows down as teams try to understand what happened, leading to improvisation and delayed action,” Amador told Cointelegraph, adding that additional losses often occur during this critical window.

Projects frequently avoid pausing smart contracts due to fears of reputational damage, while communication with users may stop entirely. Amador warned that silence typically amplifies panic rather than containing it.

“Nearly 80% of hacked projects never fully recover, and the main reason is not the initial loss of funds, but the breakdown of operations and trust during the response,” the Immunefi CEO said.

The Rising cost of human error

In 2025, crypto-related hacking incidents surged sharply, with attackers targeting both major platforms and individual wallets, resulting in total losses of $3.4 billion—the highest level since 2022.

While smart contract vulnerabilities once dominated headlines, recent losses are increasingly linked to operational and human errors.

“Human error is by far the weakest link in crypto security,” said Alex Katz, CEO and co-founder of web security firm Kerberus.

Most losses now stem from users approving malicious transactions, interacting with fake interfaces, or unknowingly revealing their private keys.

Earlier this month, a cryptocurrency user lost more than $282 million in Bitcoin (BTC) and Litecoin (LTC) in one of the largest social engineering attacks ever recorded in the crypto sector. The victim was reportedly deceived by an attacker posing as Trezor customer support and tricked into revealing the seed phrase of a hardware wallet.

Advances in artificial intelligence have significantly increased the effectiveness of such attacks. According to Amador, social engineering campaigns can now scale rapidly, enabling attackers to send thousands of targeted phishing messages per day.

Despite the grim statistics, crypto security experts remain cautiously optimistic. Smart contract security is improving faster than ever thanks to better development practices, stricter audits, and more mature tooling.

“I believe 2026 will be the strongest year ever for smart contract security,” Amador said, pointing to the growing adoption of blockchain monitoring, firewalls, and threat intelligence systems.

However, incident response readiness remains a major unresolved challenge. Amador emphasized that teams must act decisively and communicate immediately when an incident occurs, even if its full scope is unclear. Early protocol pauses, he noted, are far less damaging than allowing uncertainty to escalate.

According to Alex Katz, even technically resolved incidents often mark the beginning of the end. In most cases, “a major vulnerability is a death sentence,” as users leave, liquidity dries up, and reputational damage becomes irreversible.

As we wrote, Artificial intelligence and crypto scams: How digital assets are stolen today

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