The cryptocurrency space is growing at a rapid pace, with new coins and tokens being created every day. However, as the space grows, so does the competition for projects in the same category.
Therefore, "Vampire Attack" has become a popular term to describe how new projects can take advantage of the existing ones.
What is a Vampire Attack?
A vampire attack in cryptocurrency aims to create an identical or similar copy of a project by taking advantage of existing projects. The main objective is to drain users out of existing platforms to increase users, trading volume and liquidity. In order to achieve this goal, the new platforms normally offer some kind of incentive to the new users.
How do Vampire Attacks work?
In the most simple term, Vampire Attacks can be considered a planned incentive-based marketing objective to attract more users. From there, the project can increase liquidity and trading volume from other existing projects.
In order to execute this strategy, new attractive programs to attract are offered to lure users from existing platforms to the new ones.
For example, if a new DEX plans to attract new users from existing platforms. They can offer existing users to deposit LP tokens from the old platforms to the new platform to achieve higher incentives.
Rewards are incentivized in many forms, but the most common one is using tokens of the new platform to increase usage and liquidity.
By using this strategy, the new platform can increase use cases of their tokens, trading volume and liquidity on their exchange.
The consequences of a Vampire Attack on the blockchain
When it comes to cryptocurrency, Vampire Attacks can cause many consequences.
Existing platforms will be affected because of this type of attack. The value of a currency can drop as users switch from one platform to another, causing the liquidity, trading volume and users to be lower.
In some cases, investors can lose value in their investments according to the drop in volume of liquidity and lock-in period. Therefore, they are not able to withdraw their capital in time to take advantage of the opportunities.
However, Vampire Attack is not as bad as it seems. In fact, it can be seen as a way to improve the existing projects with more attractive incentive programs. It can also be used to stimulate the development of existing projects.
In general, Vampire Attack is a threat to existing cryptocurrency projects, but it can also be seen as an opportunity to improve the ecosystem.
Examples of Vampire Attacks
Sushiswap vs. Sushiswap
Uniswap is one of the largest decentralized exchanges by volume and liquidity, while SushiSwap (Fork of Uniswap) is a newer project that looked to unseat Uniswap by offering better rewards for liquidity providers.
In a vampire attack, SushiSwap first creates a new token that is very similar to an existing token - SUSHI.
Then, the attacker tries to get people to swap their existing tokens for the new token by offering more attractive rewards.
In this case, SushiSwap offered liquidity providers (LPs) who switched from UNI to SUSHI a higher return on their investment. 1000 SUSHI tokens on the Ethereum Network are distributed to liquidity providers from Uniswap on the targetted liquidity pools such as LINK-ETH, YFI-ETH...
This strategy can be successful if the attacker is able to convince enough people to switch to the new token, which can then lead to a decrease in the price of the UNI token.
SushiSwap’s vampire attack was successful in the short term, as it was able to pull liquidity away from Uniswap.
OpenSea vs. Looksrare
Opensea is the largest NFT marketplace in terms of the trading volume. It was launched in 2017 and allows users to buy, sell, and trade digital assets. The platform supports a wide range of assets, including art, games, and collectibles.
In early 2022, Looksrare as a brand new marketplace for NFT traders launched a huge incentive program to attract more users from existing platforms, including Opensea. First, the new marketplace made a huge airdrop of 120,000,000 LOOKS tokens (12% of the total supply) to the NFT community.
Due to the nature of blockchains, the Looksrare team also identified the most frequent traders on Opensea with at least 3TH to reward them with LOOKS tokens. However, in order to claim these rewards, the users are required to list an NFT on Looksrare's marketplace.
This strategy drained users and the trading volume of Opensea to Looksrare significantly. In just a few days, The trading volume of Looksrare almost tripled the trading volume of Opensea.
How to prevent Vampire Attacks
Vampire Attacks are still a early threat in the cryptocurrency industry. However, with the growing pace of new projects and investments, the risk of these attacks will only grow. Here are some tips on how to protect yourself and your investment from a vampire attack:
Many new investors in cryptocurrency don’t realize that their investment may be subject to a lock-in period. This is when the original investor cannot cash out or sell their tokens for a set period of time. If you are thinking about investing in a project, make sure to find out if there is a lock-in period and how long it lasts. Therefore, you can protect your funds if the incentivization drop over time.
If a project becomes very popular, it will become a target for copycats. These copycats will try to fork the project and create their own version of the project. To protect against this, the project should make it hard to fork. These can be done by implementing advanced features or by having a large community that is committed to the project.
Vampire Attack is fairly new in the world of cryptocurrency, but they have already caused quite a stir. The attacks themselves are not particularly a big threat to investors, but they have been successful in draining users from existing platforms. However, these events will open up many opportunities for new investors to come and grab juicy profits if they play it correctly.
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