What Are Vampire Attacks in Crypto?
Crypto Basics

What Are Vampire Attacks in Crypto?

Created 1yr ago, last updated 1yr ago

A vampire attack takes place when a new project or protocol, usually a fork from an established blockchain project, provides improved incentives or rewards for users compared to the original.

What Are Vampire Attacks in Crypto?

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Originally, the term ‘vampire attack’ was limited to the wireless sensor networks, where it described a very specific kind of attack where an attacker drains the energy of a network node, rendering it useless or inefficient.

The term has since been co-opted by the crypto community, where it is now used to describe an attempt to drain a competitor’s critical resources or outcompete it by virtue of its advantages.

Vampire attacks can simply be described as a type of aggressive marketing or growth strategy, rather than outright theft or nefarious activities, despite the negative connotations associated with the word “attack.”

Also read: Hack vs Scam vs Attack vs Exploit

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What Are Vampire Attacks?

In the world of decentralized finance (DeFi) and non-fungible tokens (NFTs), a vampire attack occurs when a new project or protocol — typically a fork of an existing blockchain project — offers better incentives or rewards to users than the original project.

Generally, successful vampire attacks result in a significant loss of liquidity and network effects for affected projects. In some cases, the new project may even completely "suck the life" out of the original project, hence the term "vampire attack”, in these cases, the project can be essentially completely abandoned in favor of the new one.

Vampire attacks can be either very common or extremely rare, depending on how strict your definition is. But today, it is safe to say that most popular DeFi and NFT protocols have either experienced or initiated some form of a vampire attack. For instance, the upstart NFT marketplace Blur against OpenSea:

Comparison to Other Attack Types

Vampire attacks differ greatly from the regular black or grey hat attack types common to the DeFi and broader crypto industries. While they are considered an ‘attack’, they’re generally legal and are simply a form of competition.

Besides the regular hacks, brute forcing and phishing attacks, there are a number of more nuanced attacks that currently affect the crypto space.

Here are some of the most prominent:

Sybil attacks: Sybil attacks involve creating multiple fake identities to manipulate a system. In DeFi, this type of attack can take the form of a fake liquidity provider, or be used to accumulate control over a decentralized autonomous organization (DAO).
Front-running attacks: Front-running attacks involve exploiting the time delay between when a transaction is sent and when it is processed. In DeFi, this type of attack can take the form of a miner extracting value (MEV) from a transaction before it is confirmed, such as by sniping potentially profitable transactions or siphoning profit from traders using sandwich tactics. Learn more about front running and miner extractable value.
Insider attacks: Insider attacks involve an individual within the system abusing their access privileges. In DeFi, this type of attack can take the form of a developer adding a backdoor to a smart contract, or an employee buying up/selling spot market tokens before an important announcement or product update.
51% attacks: This occurs when an attacker or group of attackers are able to temporarily gain a more than 51% share of a network’s hash rate or validator set and can double-spend funds. This most commonly occurs after a blockchain re-org or fork.

The main difference between vampire and other attack types is that the former involves using whitehat strategies to drain liquidity, users, trading volume, or some other key resource from competing platforms, whereas most other attacks involve hacking, manipulation, and/or exploitation.

Usual Targets of Vampire Attacks

Vampire attacks are a relatively common affair in the DApps space, but some projects are far more likely to fall victim to one if they are prime targets.

Generally, any project that relies heavily on user adoption and liquidity is vulnerable to vampire attacks. This includes decentralized exchanges (DEXs), NFT marketplaces, yield farms and any other project that features liquidity pools.
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Some of the features that make a project particularly susceptible to an attack include:

  • High liquidity: Projects with high liquidity are attractive targets for vampire attacks, as they offer a large pool of capital for the attacker to capture.
  • Established user base: Projects with an established user base are also vulnerable, as they have a community that the attacker can tap into.
  • High fees: Projects that charge high fees to users are particularly vulnerable, as the attacker can offer lower fees to attract users away from the original project.
  • Lack of innovation: Projects that lack innovation and fail to offer new features or better incentives to users prime targets for vampire attacks, as they are more likely to be eclipsed by a fast-moving competing project.

Steps To Carry Out a Vampire Attack

Now that we’ve understood what kind of projects are vulnerable, let’s look at the usual methods and steps a project typically takes before carrying out a vampire attack.

  1. Identify the target platform. Offer higher incentives to attract users from the target platform, such as airdrops. Employ several marketing methods to inform the target community about the new platform and its advantages.
  2. Introduce new liquidity pools on the new platform to gradually expand its offering.
  3. Use the new platform's tokens as rewards to incentivize users to move their liquidity.
  4. Increase liquidity and trading volume on the new platform.

While this strategy can be effective in attracting users and increasing liquidity, it's often viewed as unethical and could be detrimental to the overall health of the ecosystem. On the other hand, increased competition could seed out legacy projects that do not innovate and ultimately reward the end users.

Preventing Vampire Attacks

Now that you know about how these attacks are typically carried out, let’s dive into the methods and practices projects use to reduce their vulnerability to these attacks, or recover after being attacked.

Lock-in period

Commitment to a lock-in period can be required for new liquidity providers. This prevents them from providing liquidity only to withdraw it immediately after receiving their rewards, leaving the protocol with reduced liquidity. This is an example of mercenary behavior and is common to new DEXes.

Token withdrawal restrictions

Restricting the number of LP tokens that each user can withdraw over a period of time can prevent the mass migration of users and liquidity. This ensures that the protocol retains a sufficient amount of liquidity to function properly since illiquid DEXes typically suffer from high slippage.

Voting mechanism

A voting mechanism or full DAO structure can allow users to have a say in the direction of the protocol. This can help prevent vampire attacks by allowing users to choose protocols that are more aligned with their interests while maximizing the room for further growth.

Dynamic rewards

Dynamic rewards can help to maximize participant loyalty by providing an incentive to contribute liquidity or remain active for longer. By providing increased rewards for commitment and loyalty, platforms can help to reduce user churn, attract loyal users and retain existing users.

Token vesting

By vesting rewards to liquidity providers, platforms can ensure they maintain their liquidity for longer. Some platforms also go one step further by forfeiting rewards if users withdraw their liquidity before a certain minimum commitment period.

Security audits

By maximizing security, platforms can boost user confidence, giving them an edge over competing platforms that aren’t necessarily battle-tested or proven robust.

These solutions can mitigate most, if not all, of the risks associated with vampire attacks and promote healthy competition between protocols in the cryptocurrency ecosystem.

Prominent Examples of Crypto Vampire Attacks

The clearest examples of vampire attacks arise through forks, whereby an existing blockchain or protocol is copied, modified and launched as a direct competitor to the original.

By offering better incentives for users, nodes, developers, investors, partners, and more, the fork aims to suck the life out of its predecessor, and go on to become the default platform going forward.

Some of the more prominent examples of vampire attacks, albeit not all were successful, include:

1. SushiSwap/UniSwap: At launch, the decentralized exchange (DEX) SushiSwap used enhanced incentives to entice liquidity providers away from the leading AMM DEX, Uniswap. It later differentiated its feature set and capabilities to grow its user base. However, Uniswap currently retains its position as the market leader.
2. Blur/OpenSea: NFT marketplace Blur incentivized the migration of traders from competing platforms through the use of airdrop incentives. The platform temporarily overtook OpenSea by trading volume and other metrics, such as royalty fees.
3. Dash/Masternode projects: Dash fell victim to wave after wave of vampire attacks after it popularized the masternode concept to unlock additional blockchain utility. Later masternode projects including PivX, SmartCash, ZCoin, Dash Diamond, and more either forked and modified Dash or replicated its functionality to directly compete with it.

Overall, vampire attacks could be seen as a positive for the web3 ecosystem since they give rise to stiffer competition among projects — regardless of how established they are — and force innovation and improvement.

While many projects that employ vampire attack tactics offer nothing unique or distinguishing, many have proven to be intrinsically superior to competitors, and have gone on to prove their legitimacy and value. Those that are low effort cash-grabs tend to cannibalize one another, before falling into obscurity.

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