Cyber Risk Spillovers in Interconnected Financial Ecosystems: Evidence from Traditional Banks and DeFi Oracles

Abstract

This study investigates the systemic propagation of cyber risks between traditional financial institutions (TradFi) and decentralized finance (DeFi) infrastructures, focusing on oracles as critical conduits for contagion. Using publicly available datasets—including MITRE ATT&CK® for Financial Services, the Global Cybersecurity Index (GCI), and the REKT.news exploit archive—the study applies frequency analysis, logistic regression, time-series event studies, and Principal Component Analysis with cluster modeling to quantify institutional vulnerabilities, model breach likelihood, and evaluate governance impacts. Empirical findings show that API interconnectivity and DeFi exposure increase breach probabilities by up to 3.7 times, while countries in Cluster 0, such as Singapore and Estonia, exhibit governance indices 24–28 points above average, correlating with lower systemic risks. Oracle-related incidents triggered over 150% volatility surges in TradFi-linked tokens like USDC and DAI, demonstrating oracles’ role in cross-domain cyber risk transmission. The study recommends harmonizing cybersecurity governance frameworks across centralized and decentralized sectors, mandating periodic audits of oracle infrastructures, and developing integrated real-time threat monitoring systems to contain spillovers. These policy measures, alongside expanded cybersecurity workforce development, are essential to mitigate evolving cross-sector vulnerabilities. By combining rigorous empirical modeling with actionable recommendations, this research offers practical insights for policymakers, regulators, and cybersecurity professionals to strengthen resilience in the increasingly interconnected global financial ecosystem.