Table of Contents

A vampire attack explained

A vampire attack in crypto is when a new project — sometimes a fork of an established project — offers better incentives or rewards than the original. Key characteristics of a vampire attack include a new project aiming to outdo another project with very similar features or a project looking to steal competitors’ resources and customers who provide critical liquidity.

An attack often involves a decentralized finance (DeFi) protocol or decentralized application offering better rates for the same service than a close competitor. These attacks often involve mechanisms like liquidity mining, staking rewards or lower transaction fees to entice users to switch from the original project to the new one.

A DeFi vampire attack could result in losing liquidity or even shuttering an existing project. The new project “sucks the life” out of the original project, which is why these events are called vampire attacks.

The attacks aren’t necessarily scams or inherently malicious. In many cases, they are an aggressive and highly competitive growth strategy common in crypto, with some projects surviving the intense competition and others not.

What is the mechanism of a vampire attack?

In many cases, the targets of vampire attacks are projects such as yield farms and exchanges that are dependent on users and the liquidity that they give.

Projects that are dependent on users or funds are more likely to be targeted by vampires than less dependent projects. Yield farms, nonfungible token markets, automated market makers, and decentralized exchanges (DEXs) are some of the efforts that fall under this category.

Projects that have a considerable amount of liquidity will be easy targets for attackers because of the attractiveness of the monies that are accessible now. Taking use of liquidity pools is the word that describes this practice. They can also hunt for organizations like this to promote the new concept inside the organization. The new project may provide additional features and incentives while simultaneously undercutting the old project. This means that even projects with high costs and little innovation are enticing targets.

A new project that is preparing for a vampire invasion might attract the population of the existing project with high rewards in many different ways, including via the use of airdrops and effective marketing as well. It will be in the users’ best interest to move their liquidity from the present project to increase the volume and liquidity of their liquidity pools. This will be followed by efforts to retain its newly acquired customers.

If the offender is a liquidity provider, for example, it will offer yield very competitive farming services. If attackers target staking services, they will give larger staking incentives to the target businesses.

Case studies of assaults by vampires

The Uniswap DEX vampire assault that was carried out by SushiSwap is recognized by a large percentage of individuals as the first famous vampire attack.

It was SushiSwap that launched the attack on Uniswap

The Uniswap branch known as SushiSwap initiated an attack on Uniswap on the occasion of the release of the SushiSwap (SUSHI) token. SushiSwap offered a higher return on investment (ROI) and focused on certain pools on the Uniswap DEX to attract well-known consumers who were hoping for substantial returns with their purchases.

Uniswap was able to maintain its existence and even expand, in contrast to SushiSwap, which performed very well in the market. As a result of ForkDelta’s attack on SushiSwap in March 2022, the platform’s liquidity was reduced by more than one hundred million dollars.

Projects related to Dash and potential master node projects

Dash was the first cryptocurrency to establish the concept of a master node; nevertheless, its competitors quickly did the same thing and replicated its features. Following the forking of the Dash protocol, many projects made modifications to it to compete with it head-to-head. Dash Diamond, ZCoin, PivX, and SmartCash were among the cryptocurrencies that contributed to the assault.

The effects of a vampire strike

After a crime, there is a greater level of competition, which in turn encourages projects to develop and work more diligently to maintain their customer base. Despite this, they can do damage to the market and steal money from customers.

Crypto vampire attacks that are extremely aggressive and steal ideas from other projects might be regarded as unfair and unethical. Competition in the market, on the other hand, may be able to assist in the elimination of efforts that are not giving customers favourable incentives, are not developing anything new, and are only attempting to seize a portion of the market.

In the case that the liquidity of a project falls to an unacceptable level during an attack, the project will be unable to continue operations and will finally be shut down. Even relatively minor attacks that reduce the number of customers for a project might have a significant impact on the project’s capacity to grow and compete over the long term. In the aftermath of an assault, it may be necessary for a project to recoup users by acting in an equally aggressive manner.

Competition has the potential to ensure that customers are provided with the best possible deals by preventing projects from abusing a captive market in which consumers have no power, charging unfair prices, or simply hoarding revenues without reinvesting them in better products or services. When vampires strike, it is sometimes a sign that exciting new enterprises are about to commence. These new businesses can increase both productivity and incentives.

On the other hand, when there is an excessive amount of competition, clients may be lured by new businesses that appear desirable at first look. For example, scams, hacks, and other unlawful actions are examples of new projects that have the potential to be destructive and lead clients to lose all of their money.

How to defend yourself from attacks by crypto vampires

All cryptocurrency projects and cryptocurrency users alike can protect themselves from being vulnerable to being exploited by vampires.

To protect themselves against less violent vampire attacks, crypto projects may safeguard themselves by being competitive with healthy incentives, rewarding devoted users, and innovating to supply the finest features. This is the easiest technique.

When it comes to protecting its users and its liquidity, a project can take more focused actions. On the platform, for instance, there are lock-in periods that make it impossible for consumers to withdraw funds once they have received incentives. This is done to ensure that customers remain committed to the platform. A similar approach is taken by liquidity token withdrawal regulations, which restrict the quantity of tokens that users may withdraw within a specified time frame. This serves to deter bulk withdrawals.

Through the use of token vesting schedules, which distribute benefits in a step-by-step manner, platform liquidity is safeguarded. Providing users with dynamic rewards is an additional way to enhance user loyalty and engagement. Increasing user loyalty may be accomplished by encouraging user participation in governance, which can be accomplished by the inclusion of decentralized autonomous organizations or the provision of voting rights.

It is possible to raise the attractiveness and trustworthiness of a project by the management of its reputation, the development of a community, and the performance of security audits. This makes the project more resistant to competition. All of these tactics, when combined, improve user devotion and confidence, which are two qualities that are essential to the long-term success of decentralized networks.

Users of cryptocurrencies and investors can further protect themselves against attacks by vampires if they remain current on the most recent project tactics of the cryptocurrency industry. For instance, freshly established decentralized exchanges (DEXs) usually provide exceptionally large liquidity incentives.

You May Like These Post Also 🙂

What is a cryptographic vampire attack?