Crypto projects are increasingly abandoning the open-source model to protect their ideas, however, critics warn that the drawbacks of closed code still outweigh its advantages.
Cryptocurrencies were born from the philosophy of open source, where the code is publicly available for verification and shaped by community contributions. Transparency and verifiability are fundamental principles that ensure trust in Bitcoin.
However, as the industry has evolved, some drawbacks of open code have emerged. Innovative smart contract platforms and decentralized finance applications have been forked, creating direct competitors — from a wave of Uniswap clones to forks — that prioritize speed and low fees over decentralization.
As a result, some projects have chosen closed-source development to protect proprietary solutions and reduce the risk of exploits, hoping to delay or deter attackers by making code analysis more difficult. This approach is often criticized as 'security through obscurity,' where hiding vulnerabilities instead of fixing them becomes a line of defense.
Closed systems contradict the original vision of cryptocurrencies — decentralization and transparency. What began as a grassroots movement among cypherpunks and hackers is increasingly becoming mainstream and integrating with the very institutional system it once sought to disrupt.
The Solana Loopscale exploit case shows why open code can be more secure
The hack of the Loopscale protocol on #solana shows that closed code is not a universal solution to protect against attackers. On April 26, just a few weeks after launch, the closed-source lending DeFi platform suffered a $5.8 million exploit.
The hacker reportedly manipulated collateral parameters to obtain a series of unsecured loans, withdrawing funds from the protocol.
Although the incident ended relatively positively — Loopscale managed to negotiate with the attacker for a refund — it reignited concerns about the prevalence of closed-source projects on Solana and in the crypto industry as a whole.
Jordan, an engineer at the research firm Solana Anza, pointed out this issue in a critical review in 2023, calling closed-source DeFi protocols and wallets one of the main weaknesses of the network. He argued that when a small group can change the code without oversight, users are forced to trust developers blindly rather than verifiable smart contracts.
According to DefiLlama data, closed-source protocols dominated the Solana DeFi ecosystem in its early stages, then reached parity with open-source alternatives by the end of 2021. Since then, the shift has been gradual but evident. As of April 29, open-source protocols accounted for nearly 90% of the value locked in the Solana DeFi space.
Audited open source code is the optimal solution for the development of crypto projects. Closed code effectively serves only as a cover for potential vulnerabilities, implementing the dubious concept of 'security through obscurity.' Openness of code, combined with professional auditing and a rewards program, not only increases the number of experts reviewing the code but also creates proper incentives for all ecosystem participants.
The crypto industry is maturing and moving away from open source
While there are strong voices calling for the preservation of open source in cryptocurrencies, many in the industry have expressed concern about the growing shift towards closed-source development (the Solana ecosystem is an exception in this regard).
Closed source is the standard solution in the corporate world used to protect intellectual property, maintain competitive advantage, and reduce the risk of exploits. Increasingly, crypto companies are adopting the same mindset — not to replace traditional infrastructure, but to integrate with it.
Many of the most prominent players in this space are no longer trying to radically change the financial system. Companies are seeking to obtain banking licenses, build institutional channels, and engage with regulators. In this context, closed source is not seen as a betrayal of cryptocurrency ideals, but rather as a practical step toward becoming part of the world they once sought to change.
These debates are not limited to cryptocurrencies. In early 2025, Chinese company DeepSeek shocked global markets with the release of a powerful, inexpensive open-source AI model. This demonstrated how open-source innovations can challenge Western dominance in #AI .
But according to Matt Pearl, director of strategic technologies at the Center for Strategic and International Studies, open-source AI can be dangerous without protective mechanisms.
Pearl and his co-authors argued in a February report that open-source AI allows anyone to upload, modify, and remove protective mechanisms. According to Pearl, DeepSeek can easily be hacked to create malware, phishing kits, or disinformation, increasing the likelihood of abuse by cybercriminals compared to closed models.
Arguments from proponents of open source in cryptocurrencies
One of the common arguments for closing the code of smart contracts is that regular users do not read it, while attackers do. However, Mikko Ohtamaa, founder of Trading Strategies, argues that this misses the essence of the problem.
"Even if 99% of DeFi users don’t understand the code and don’t know what it says, it only takes one honest person to expose bad code and warn other users," he stated, adding that projects can still protect their intellectual property through licensing, citing the Uniswap v3 business license model.
Arguments in favor of open-source security are supported by some research. A report by Red Hat for 2022, based on a survey of nearly 1,300 IT leaders, showed that most consider open-source software to be as secure or more secure than proprietary alternatives.
"Transparency is a fundamental property of cryptographic and blockchain systems. Without transparency, there is no verification. Without verification, any low-trust system like blockchain is no better than a centralized system," noted Ohtamaa.
In summary, it can be noted that the debates about closed and open source in the crypto industry reflect a broader question of the balance between innovation and security. Statistics show a gradual return to open solutions in the Solana ecosystem, which may indicate a recognition of their long-term advantages.
