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What is a vampire attack in the blockchain industry?
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What is a vampire attack in the blockchain industry?

created Forex Club30 Września 2022

"Vampire Attack" is a strategy for a new blockchain project aimed at quickly attracting users and their funds from a more popular competing application. Typically, the authors of a new application present a product similar in functionality to the "original", but offer its users more lucrative incentives through rewards in the form of their own tokens.

In autumn 2020, decentralized Uniswap exchange was the target of a vampire attack, in January 2022 the target was the NFT OpenSea market.

What is the essence of a vampire attack?

A typical vampire attack has three components:

  1. Finding the master project.
  2. Create an equivalent using the business model, architecture, or code of the original.
  3. Promotion through excessive economic incentives (the main difference to the popular competitor).

Such a strategy should cause the new project to "suck" users and their capital from the attack target - the popular protocol.

The vampire attack strategy is derived from decentralized finance (DeFi). The source code for a DeFi application, or the greater part of it, is typically open source. This makes a similar application relatively easy to copy and run with only minor modifications. In addition, the makers of "copies" can easily produce their own control tokens and use them to inflate the profitability of liquid farming, which is the standard way for users to earn money.

How did Uniswap fall victim to a vampire attack?

In 2020, the decentralized Uniswap exchange began to rapidly gain popularity in the DeFi space. By the beginning of September 2020, the daily trading volume in the protocol reached 1,8 billion USD. This was comparable to the leading centralized cryptocurrency trading venues.

Against this background, a project called SushiSwap emerged. Its anonymous creators made it clear that the new protocol is a fork of Uniswap. But Sushi Swap had an important difference - own SUSHI token, which users received as a reward for farming in the pools.

While almost every decentralized exchange now has a management token, this was not a common practice at the time. DeFi, however, has already had examples of their effectiveness as an economic stimulus.

The SushiSwap team offered attractive terms to liquidity providers - thanks to the awards at SUSHI, participation in exchange pools brought hundreds or even thousands of percent of annual returns. As a result of the vampire attack, Uniswap users transferred over $ 1 billion of funds to SushiSwap in just a few weeks. This reduced the amount of locked liquidity (TVL) in the "original" by 70%.

However, this situation did not last long - the high speed of SUSHI farming led to a sharp inflation of its price, which resulted in an equally rapid decline in profitability in the SushiSwap pools. In mid-September, Uniswap returned to the leaders of DeFi in terms of TVL. Moments later, the UNI management token appeared, which finally wiped out SushiSwap's advantage.

How did vampires attack OpenSea in 2022?

Another victim of "vampires" was the NFT-marketplace OpenSeawhere most of the trade with non-exchangeable tokens takes place. Another NFT trading platform, Looks Rare, launched in early 2022. Although its creators, unlike SushiSwap, did not copy OpenSea smart contracts, but wrote their own, the main element of their attack was also a platform token called LOOKS.

Users who traded NFT on LooksRare received LOOK awards for their activity. However, there was one condition - only those who traded on OpenSea 2021 ETH or more between June and December 3 could take part in the giveaway.

In addition to this "promotion", users of the new platform could also get LOOKs by stacking with a return rate of around 500% per annum. Additionally, LooksRare transaction fees were more favorable. The consequence of the vampire attack was a sharp increase in turnover on LooksRare and a drop on OpenSea.

At the same time, LooksRare was far behind its competitor in terms of the number of active users. Given comparable trading volumes, the researchers suggested that few users of the new market were actively wash trading, i.e. carrying out massive amounts of fraudulent trades to obtain LOOKS rewards. According to a CryptoSlam report, by early April, the share of fraudulent trades in the total trading volume on LooksRare had reached 95%.

The site then changed incentives and began cracking down on unscrupulous practitioners, which led to a decline in activity. According to The Block, the amount of transactions fell from $ 69 million on May 1, 2022 to just $ 1 million on August 15, while the rate of fraudulent transactions fell from 98% to 13% over the same period. At the same time, OpenSea regained its leading position in the NFT market.

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About the Author
Forex Club
Forex Club is one of the largest and oldest Polish investment portals - forex and trading tools. It is an original project launched in 2008 and a recognizable brand focused on the currency market.