Best Way to Explain What Are Vampire Attacks in Crypto?
A vampire attacks in Crypto occurs when a new project or protocol, typically a fork from an established blockchain project, offers better incentives or rewards to users than the original.
A vampire attack occurs in the field of decentralized finance (DeFi) and non-fungible tokens (NFTs) when a new project or protocol, usually a fork of an existing blockchain project, offers higher incentives or rewards to users than the original project.
Successful vampire attacks typically result in huge liquidity and network implications for targeted projects. In rare situations, the new project may even “suck the life” out of the existing project, hence the name “vampire attack”; in these cases, the project can be virtually abandoned in favor of the new one.
Depending on how tight your definition is, vampire assaults can be incredibly common or exceedingly rare. However, it is safe to state that today’s most popular DeFi and NFT are Protocols have either been subjected to or started a vampire attack. For example, compare the startup NFT marketplace Blur to OpenSea.
When Compared to Other Attack Types
Vampire attacks are very different from the typical black or grey hat attacks seen in the DeFi and broader crypto businesses. While they are classified as a “attack,” they are normally legal and serve only as a kind of competitiveness.
Aside from the standard hacks, brute forcing, and phishing assaults, the crypto realm is currently being affected by a number of more subtle attacks.
Here are a few of the most notable:
Sybil attacks include the creation of several false identities in order to control a system. This type of attack in DeFi can take the shape of a bogus liquidity provider or be used to gain control of a decentralized autonomous organization (DAO).
Front-running attacks take advantage of the time lag between when a transaction is sent and when it is received.
is being worked on. This type of assault in DeFi can take the form of a miner taking value (MEV) from a transaction before it is confirmed, for example, by sniping potentially profitable transactions or siphoning profit from traders employing sandwich methods. Learn more about miner extractable value and front running.
Insider threats: Insider attacks occur when a user within the system abuses their access privileges. This type of assault in DeFi can take the shape of a developer putting a backdoor to a smart contract or an employee buying/selling spot market tokens before to a major announcement or product upgrade.
51% assaults occur when an attacker or group of attackers is able to temporarily obtain control of more than 51% of a network’s hash rate. Validator is enabled, and cash can be spent twice. This is most typically seen following a blockchain re-org or fork.
The primary distinction between vampire and other attack types is that the former use whitehat techniques to drain liquidity, users, trading volume, or some other critical resource from competing platforms, whereas most other attacks employ hacking, manipulation, and/or exploitation.
Typical Vampire Attack Victims
Vampire attacks are quite regular in the DApps sector, however some projects are significantly more likely to be victims if they are prime targets.
Any project that is heavily reliant on user adoption and liquidity is prone to vampire attacks. Decentralized exchanges (DEXs), NFT markets, yield farms, and any other project with liquidity pools fall into this category.
Some of the characteristics that make a project particularly vulnerable to an attack are as follows:
Projects with significant liquidity are appealing targets for vampire attacks because they provide a substantial pool of capital for the attacker to grab.
Projects with an established user base are similarly vulnerable because they have a community that the attacker can tap into.
High prices: Projects that charge high fees to consumers are especially vulnerable since an attacker can offer reduced fees to lure customers away from the original project.
Lack of innovation: Projects that fail to offer new features or better incentives to consumers are good targets for vampire attacks since they are more likely to be overshadowed by a faster-moving competitor project.
Steps To Carry Out a Vampire Attack
Now that we know what kind of projects are vulnerable, let’s look at the common tactics and stages a project takes before launching a vampire assault.
Determine the target platform. Offer greater incentives, such as airdrops, to entice consumers away from the target platform. Use a variety of marketing techniques to inform the target audience about the new platform and its benefits.
Introduce fresh liquidity pools to the new platform gradually to broaden its offering.
To encourage customers to migrate their liquidity, utilize the new platform’s tokens as rewards.
Increase the new platform’s liquidity and trading volume.
While this method can be effective in attracting users and increasing liquidity, it is frequently regarded as immoral and may be harmful to the general health of the ecosystem.Increased competition, on the other hand, may seed out legacy programs that do not innovate, ultimately rewarding end users.
Defending Against Vampire Attacks
Now that you understand how these assaults are often carried out, let’s look at the strategies and procedures that projects employ to limit their exposure to these attacks or recover after they have been assaulted.
The lock-in period
New liquidity providers may be asked to commit to a lock-in term. This prohibits individuals from contributing liquidity only to remove it shortly after getting their rewards, resulting in a lower liquidity in the protocol. This is mercenary conduct, which is frequent among new DEXes.
Withdrawal limits for tokens
Limiting the number of LP tokens that each user can withdraw over time can help to prevent user and liquidity mass movement. This ensures that the protocol retains a sufficient amount of liquidity to function correctly, as illiquid assets are not permitted.
DEXes are notorious for having a lot of slippage.
Mechanism for voting
A voting mechanism or a full DAO structure can allow users to influence the protocol’s direction. This can help reduce vampire attacks by allowing users to select protocols that are more aligned with their interests while yet allowing for future evolution.
Dynamic rewards can help to increase participant loyalty by offering an incentive to give liquidity or stay active for a longer period of time. Platforms can help to reduce user churn, acquire loyal users, and retain existing users by increasing benefits for commitment and loyalty.
Vesting of tokens
Platforms can ensure that liquidity providers maintain their liquidity for a longer period of time by vesting benefits to them. Some sites even go so far as to forfeit incentives.
If consumers remove their liquidity before a specific minimum commitment term, they will be penalized.
Audits of security
Platforms can get an advantage over competing platforms that haven’t been battle-tested or proven resilient by enhancing security.
These methods can alleviate most, if not all, of the hazards associated with vampire attacks while also encouraging healthy competition among bitcoin systems.
Examples of Prominent Crypto Vampire Attacks
The most obvious vampire assaults occur as a result of forks, in which an existing blockchain or protocol is copied, updated, and launched as a direct competitor to the original.
By providing greater incentives for users, nodes, developers, investors, partners, and others, the fork hopes to suffocate its predecessor and eventually become the default platform.
Some of the more notable vampire attacks, albeit not all were successful, include:
- Sushi/UniSwap: SushiSwap, a decentralized exchange (DEX), employed higher incentives at launch to lure liquidity providers away from Uniswap, the top AMM DEX. Later, in order to expand its user base, it differentiated its feature set and capabilities. Uniswap, on the other hand, continues to be the market leader.
- Blur/OpenSea: NFT exchange
- Dash/Masternode initiatives: After popularizing the masternode technique to unleash more blockchain utility, Dash became the target of wave after wave of vampire assaults. Later masternode projects such as PivX, SmartCash, ZCoin, Dash Diamond, and others either forked and changed Dash or reproduced its capabilities to compete with it directly.
Overall, vampire attacks may be beneficial to the web3 ecosystem since they increase rivalry among projects, regardless of how established they are, and force innovation and improvement.
While many vampire attack initiatives provide nothing unique or distinguishing, several have shown to be genuinely superior than competitors, and have gone on to prove their legitimacy and usefulness. Those who are low-effort cash grabs tend to cannibalize one another before going extinct.