What is a vampire attack

Definition of Vampire Attack

The concept of a “vampire attack” in the crypto market is quite simple: an attacker creates a protocol that is identical or similar to the target protocol, while offering more profitable and attractive incentives, thereby drawing the target’s market share or users to their side, essentially “sucking blood.”

Let’s explore this concept further through two examples.

SushiSwap ? Uniswap

SushiSwap is considered the earliest and most famous “vampire” in the crypto market, targeting Uniswap.

Weaknesses of Uniswap

Uniswap is an open-source AMM decentralized exchange. During the 2020 DeFi Summer, Uniswap benefited from market growth, and with the launch of V2, its TVL increased from $70 million in June to $300 million by the end of August, becoming a leading player in the DEX space.

For more information on Uniswap, please refer to: What is Uniswap

At the same time, there were hidden risks in Uniswap’s development path — it had not issued a governance token at that time, nor did it change its incentive mechanisms as the platform grew (initially, rewards for liquidity providers were only transaction fees). This was a significant weakness because liquidity providers supported the platform’s operation and bore impermanent loss but couldn’t share in the platform’s rapid growth. At this point, an anonymous developer known as “Chef Nomi” seized this weakness.

SushiSwap’s Innovation

Nomi created SushiSwap, which was essentially a simple fork of Uniswap. Notably, SushiSwap introduced a very critical new feature: the combination of a governance token (SUSHI) and liquidity staking rewards.

As a governance token, SUSHI also functions as a platform coin. In SushiSwap, 0.25% of the trading fees in the pool are directly distributed to active liquidity providers, and an additional 0.05% is converted into SUSHI and distributed to SUSHI holders (essentially a buyback). This means liquidity providers can earn both a share of trading fees and token rewards.

The key point is that SushiSwap stipulates SUSHI will only be rewarded to users providing liquidity in the form of Uniswap LP tokens. In other words, it aims to attract Uniswap users to participate in SUSHI mining.

The “Vampire” Process

SushiSwap’s staking contracts and SUSHI distribution began on August 28, 2020. Initial rewards were highly aggressive, with an annual interest rate of up to 1000%. Under such incentives, users rushed to deposit assets into eligible pools on Uniswap (including USDC/ETH, SUSHI/ETH, and 11 other pools) to obtain Uniswap V2 LP tokens, then quickly transferred these tokens into SushiSwap contracts.

After about 100,000 blocks (roughly two weeks), SushiSwap initiated liquidity migration — transferring all Uniswap LP tokens to SushiSwap and exchanging corresponding token pairs on Uniswap, then using these tokens to initialize new SushiSwap liquidity pools. By the end of the migration, SushiSwap had accumulated about $800 million in tokens, accounting for roughly 55% of Uniswap’s liquidity at the time, while Uniswap’s TVL plummeted by about $400 million.

Reviewing this event, SushiSwap forked Uniswap’s architecture and introduced new reward mechanisms, creating an image of “more than Uniswap but based on Uniswap.” Motivated users transferred funds to SushiSwap. Although Uniswap eventually recovered and launched its own token UNI, SushiSwap was still successful — it rapidly accumulated liquidity through the vampire strategy, becoming a top DEX.

LooksRare ? OpenSea

Earlier this year, a similar vampire attack occurred in the NFT market, initiated by LooksRare against OpenSea.

Weaknesses of OpenSea

OpenSea is a comprehensive NFT trading platform where users can buy and sell digital art, game items, virtual real estate, domains, financial products, and more. It supports ERC-721 and ERC-1155 NFTs. The platform charges a 2.5% fee on secondary sales, and primary minting fees can be as high as 10%.

As a dominant NFT trading platform, OpenSea holds most of the market share but has received many negative reviews from users, including inconsistent payment methods (users often need to switch between ETH and WETH), high transaction fees, etc. The main issue is that OpenSea’s organizational structure is highly centralized, heavily reliant on traditional capital, and lacks decentralization and Web 3.0 characteristics.

LooksRare’s Innovation

Launched in January 2022, LooksRare is also an NFT trading platform. It learned from OpenSea’s experience and introduced some innovations, including:

• Allowing hybrid payments with ETH and WETH. Both can be used for bidding and payments on LooksRare;

• Supporting series-based bidding. This design improves the experience for buyers who focus on NFT series themes rather than individual details, as they don’t need to list each item separately;

• Most importantly, upgrading fee and incentive mechanisms. LooksRare charges a 2% fee on all transactions and distributes this fee income to stakers of its native token, LOOKS. The platform aims to challenge OpenSea’s dominance in the NFT space by distributing fees to the community.

Does this sound familiar? This is the core idea of the vampire strategy: targeting a leading project’s weakness, then addressing it to better attract and retain users.

The “Vampire” Process

LooksRare’s specific vampire process is straightforward.

It systematically identifies major NFT traders on OpenSea (those with a trading volume exceeding 3 ETH over the past six months) and directly whitelists these traders for airdrops of its native token, LOOKS. However, to claim the airdrop, these traders must first trade at least 1 NFT on LooksRare.

The official description of the airdrop rules on LooksRare’s website.

This method effectively converts many OpenSea users into LooksRare traders, boosting LooksRare’s market cap to $1 billion, with the LOOKS price reaching around $7 , peaking at $7.1.

Since its launch in January 2022, LooksRare’s weekly trading volume soared to $2.9 billion, nearly three times that of OpenSea in the same week.

Summary

For project teams, vampire attacks are akin to a drastic blow, bringing volatility risks to the market; but from the broader crypto market perspective, such fierce competition among projects can be beneficial — it stirs up the ecosystem. In this regard, vampire attacks not only have the potential to improve user experience but also help mitigate the risks of market centralization and monopolization by oligopoly projects. **$OPEN **