What is a Vampire Attack in Crypto Space?

he crypto space is full of opportunities for developers. Due to its open-for-all and decentralized nature, anyone can build their own decentralized financial application and deploy it publicly without getting into any regulatory hurdles. In this highly competitive landscape, there is no lack of innovative techniques to unlock exponential growth for new crypto projects and vampire attack is one of them. 

In this article, we will explore what is vampire attack in crypto and how it is executed by crypto platforms. Let’s hop right into it; 

What is a Vampire Attack?

In the crypto space, a vampire attack is a technique in which a new project snatches users and liquidity from a dominating project. This new project will usually be a fork of the existing project and it will attract users by offering higher incentives, better user experience, and other lucrative benefits. 

The scope of crypto vampire attacks is more specifically spread in the decentralized finance (DeFi) space. There are several identical protocols in DeFi that provide similar services such as swapping, staking, or DeFi lending. Each of these protocols generally takes a small fee on every transaction and they also offer rewards for active participation. What a new project does under vampire attack is reduce the fee charged on transactions while incentivizing users with irresistible rewards that can not be neglected. 

Vampire attacks have shaken out many leading DeFi protocols including Uniswap, Cream Finance, OpenSea, and others. The term ‘Vampire Attack’ has been derived as a new crypto project drains users and liquidity from the source project, just like a vampire drains blood. The attacker project benefits from an already existing user-base and it develops growth strategies by leveraging competitive advantages.

How Crypto Vampire Attack Happens?

A vampire attack is executed by newer crypto project developers who wish to disrupt an existing market. They do so by forking the open-source code of a particular project and implementing some additional features. The main goal here is to replace the previous project by improving and modifying tactics that directly benefit users. 

Most of the crypto vampire attacks happen because developers want to break the monopoly around a DeFi platform. It could also be a reason for advancing the crypto product where the existing one has its limitations. 

For instance, Uniswap – as a traditional DEX –  was just offering normal asset swapping but the late innovations such as concentrated liquidity and cross-chain swaps were introduced by new generation DEXs. In this case, a developer could build a new DEX with those additional features while charging a swapping fee lower than Uniswap. 

Vampire attacks are launched using different methods such as incentivizing active participation via airdrop and liquidity mining programs. These highly influential techniques could drag huge liquidity and users. Following are some popular tactics that developer uses in vampire attacks:

Airdrop: Crypto airdrops are currently the most popular growth tool for cryptocurrency projects. It involves rewarding early contributors with native tokens. Airdrops are beneficial for crypto projects in different ways such as building community and attracting initial liquidity. Users will start migrating to the airdropping project to grab free crypto money. 

Liquidity Mining: Liquidity mining is the process of earning additional yields for users who add liquidity to DEX liquidity pools. They will have to stake their LP tokens – received as proof of liquidity – for a specific period. The attacking DEX will obviously offer higher APY on staking than the primary protocol. 

Are Vampire Attacks Legitimate?

While the crypto space is open and decentralized, such methods are seen as valid for the sake of the growth of the overall cryptocurrency ecosystem. Vampire attacks can drive innovations and healthy competition among exchanges, staking platforms, and other crypto applications. 

However, the misuse of this technique could take a wild turn and ruin the existing player’s reputation. The entity that uses such a strategy needs to be transparent and honest in its actions. The use of open-source code is subject to giving credits to the owner. So it is a must for a crypto project to mention credits while forking a code. In these terms, vampire attacks are viewed as exploitative as they depend on the already acquired idea, market, and user-base.  

Vampire Attack Examples

The crypto industry has several protocols or platforms that faced the Vampire attack at one point. The most known vampire attack was executed by Sushiswap when Uniswap was a leader in decentralized exchange platforms. 

Uniswap Vs Sushiswap

In the 2020 DeFi summer, Sushiswap forked the Uniswap code and launched a decentralized exchange platform. Sushiswap introduced the revenue-sharing feature on its platform which was functionalized with the native SUSHI token. It rewarded liquidity providers with free SUSHI tokens and lured significant liquidity of over $1 billion within days. This move severely damaged Uniswap’s position as a leading DEX that it had to launch UNI token and follow the footsteps of Sushiswap in sharing revenue with liquidity providers. 

OpenSea Vs LooksRare

When the NFT era started to rise, OpenSea secured its position as a leading NFT marketplace. In 2022, another NFT marketplace LooksRare emerged out of nowhere and started targeting OpenSea users. LooksRare became successful in diverting attention with its airdropping of over 120 million native LOOKS tokens to active users. To claim free tokens, most of the users including NFT artists, art collectors, and buyers migrated to LooksRare. 

Also Read: How To Buy NFTs on OpenSea?

There is also a debate on Tron which used a similar technique to launch the blockchain network similar to Ethereum. It offered much lower-cost transactions than Ethereum and gained [popularity in the crypto space in a short time.  

How to Protect Against Vampire Attacks?

Vampire attacks are a nightmare for existing and well-established DeFi projects. Similar to Uniswap, any major decentralized platform could become a victim of Vampire attack and those are often invincible. Although developers could take some actions to mitigate the risk or the impact of Vampire attacks. 

Following are some practices for developers that could minimize the risk of Vampire attack;

Better Incentives

A DeFi project should incentivize active users so that they stick to the products and services offered. A healthy amount of rewards in exchange for tasks, such as providing liquidity, would keep users connected to the protocol. 

Liquidity Locking

Tactics such as liquidity locking would help DeFi protocol in sustaining TVL for a longer time. Developers should offer higher incentives for users who lock their liquidity for extended periods.

Innovative Features 

DeFi projects should be regularly updated with newer features and functionalities that help improve user experience. A simple user side feature or update could keep users interacted and connected to the project.

Gamification

Gamification is the most innovative way for keeping users connected to the services. Users need to be provided with points, tokens or other rewards for each task they perform on DeFi projects. 

In addition, regular audits and marketing campaigns also help in keeping users loyal, which somewhat minimizes the impact of Vampire attack. 

Final Words

Critics in the crypto industry argue that vampire attacks are unfair and often are used with ill intentions toward a specific DeFi project. While some experts also take its side stating that it is acceptable as the market should have competition and it will foster newer innovations in the long run, benefiting the whole crypto industry. 

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