Vampire Attacks in Crypto: Strategies, Examples, and Prevention

Initially, the term ‘vampire attack’ found its roots in wireless sensor networks, specifically denoting a distinct form of assault wherein an attacker depletes the energy of a network node, rendering it ineffective or inefficient.

However, the crypto community has since adopted and expanded the term, now applying it to characterise endeavours aimed at depleting a competitor’s essential resources or surpassing them through inherent advantages. Today, let’s discuss what is a vampire attack in crypto and what it’s about.

What Is a Vampire Attack?

In the dynamic realms of DeFi and NFTs, a vampire attack unfolds when a fresh project or protocol, often a derivative of an existing blockchain venture, entices users with superior incentives or rewards compared to the original project.

Successfully executed vampire attacks typically lead to a substantial depletion of liquidity and network effects for the impacted projects. In certain instances, the newcomer might completely overshadow and absorb the original project, essentially draining its vitality — hence the term “vampire attack.” This scenario might result in the abandonment of the initial project in favour of the new contender. Presently, it’s evident that a majority of popular DeFi and NFT protocols have encountered or initiated some form of a vampire attack.

Targets for Vampire Attacks

Vampire attacks are a recurring phenomenon in the DApps arena, with certain projects being more susceptible to falling prey to such assaults. Typically, projects heavily dependent on user adoption and liquidity face a higher risk of vampire attacks. This encompasses DEXs, NFT marketplaces, yield farms, and any project incorporating liquidity pools. Factors that heighten a project’s susceptibility to an attack include:

• High Liquidity: Projects boasting substantial liquidity become enticing targets for vampire attacks, providing a sizable capital pool for attackers to exploit.
• Established User Base: Projects with an already established user base are vulnerable, as attackers can tap into this existing community.
• High Fees: Projects imposing high fees on users are particularly susceptible, as attackers can lure users away by offering lower fees compared to the original project.
• Lack of Innovation: Projects lacking innovation and failing to introduce new features or enhanced incentives become prime targets for vampire attacks. Such projects are more likely to be overshadowed by agile competitors offering novel solutions.

How Vampire Attack Works: Steps Unveiled

Now that we’ve explored the vulnerabilities of certain projects, let’s delve into the typical methods and steps a project usually undertakes before launching a vampire attack.

• Identify the Target Platform: Pinpoint the platform to target.
• Offer Higher Incentives: Attract users from the target platform by providing superior incentives, such as airdrops.
• Employ Various Marketing Methods: Use multiple marketing strategies to inform the target community about the new platform and its advantages.
• Introduce New Liquidity Pools: Gradually expand the new platform’s offerings by introducing new liquidity pools.
• Utilise Tokens as Rewards: Incentivize users to shift their liquidity by using the new platform’s tokens as rewards.
• Boost Liquidity and Trading Volume: Increase liquidity and trading volume on the new platform.

While this strategy can effectively attract users and enhance liquidity, it’s often perceived as unethical and may adversely impact the overall health of the ecosystem. On the flip side, heightened competition could weed out stagnant projects, promoting innovation and ultimately benefiting end-users.

How to Prevent Vampire Attacks?

Now that you’re familiar with the tactics employed in these attacks, let’s delve into the methods and best practices projects adopt to diminish their vulnerability or recover post-attack.

• Lock-in Period: New liquidity providers may be required to commit to a lock-in period, preventing immediate withdrawal after receiving rewards. This curtails mercenary behaviour commonly seen in new DEXes.
• Token Withdrawal Restrictions: Restricting the withdrawal of LP tokens over time curbs mass migrations, ensuring the protocol maintains adequate liquidity. This safeguards against high slippage, a common issue in illiquid DEXes.
• Voting Mechanism: A voting mechanism or full DAO structure empowers users to influence the protocol’s direction, thwarting vampire attacks. Users can align with protocols that resonate with their interests, fostering growth opportunities.
• Dynamic Rewards: Implementing dynamic rewards incentivizes prolonged user engagement and loyalty. By offering increased rewards for commitment, platforms reduce user churn, attract loyalty, and retain participants.
• Token Vesting: Vesting rewards to liquidity providers ensures prolonged liquidity maintenance. Some platforms go a step further, forfeiting rewards if users withdraw liquidity before a specified commitment period.
• Security Audits: Maximising security through regular audits enhances user confidence, setting platforms apart from competitors lacking battle-tested robustness.

Examples of Crypto Vampire Attacks

The most vivid illustrations of vampire attacks often emerge through forks, where an existing blockchain or protocol undergoes replication, and modification, and emerges as a direct competitor to the original. Here are some prominent examples of vampire attacks, though not all were triumphant:

1. SushiSwap/UniSwap: SushiSwap’s decentralised exchange (DEX) lured liquidity providers from the leading AMM DEX, Uniswap, with enhanced incentives at launch. Despite its efforts to differentiate and expand, Uniswap currently maintains its market leader status.
2. Blur/OpenSea: NFT marketplace Blur enticed traders from rival platforms through airdrop incentives, briefly surpassing OpenSea in trading volume and other metrics like royalty fees.

Conclusion

From a broader perspective, vampire attacks can be perceived as a positive catalyst for the Web3 ecosystem, fostering heightened competition among projects, irrespective of their established status. This intensified competition serves as a driving force for innovation and continuous improvement.

While some projects resorting to vampire attack tactics may lack uniqueness or distinctive features, others have demonstrated intrinsic superiority over competitors, establishing their legitimacy and value. In contrast, those characterised as low-effort cash grabs often engage in mutual cannibalization before fading into obscurity. The dynamic interplay within this ecosystem showcases a nuanced landscape where only genuinely innovative and valuable projects stand the test of time.

About Concorpad

Concorpad stands at the forefront as an innovative launchpad platform operating on the robust Concordium blockchain, poised to revolutionise the IDO landscape for inventive ventures. Our core mission is firmly rooted in bridging the divide between visionary concepts and the market, providing an all-encompassing framework from the initiation of token launch to its seamless listing. At Concorpad, our unwavering dedication revolves around cultivating growth and propelling innovation within the expansive realm of the blockchain ecosystem.

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