The major goal is to drive customers away from current platforms in order to boost user numbers, trading volume and liquidity. The new platforms typically provide some sort of incentive to the new subscribers in order to accomplish this goal.

In simple terms, Vampire Attacks can be seen as a targeted incentive-based marketing goal to draw in more users. The project can then use the additional liquidity and trade volume from other active projects.

In order to carry out this technique, new, alluring programmes are made available in an effort to entice consumers away from current platforms and toward new ones.

Let’s make it simpler for you with an example.

Suppose, a new DEX wants to attract customers from its existing competition. What can he offer them to attract customers who have already invested in its competition? Greater Incentives.

To increase incentives, they can encourage current users to transfer their LP tokens from the existing competitor platforms to the new ones.

There are several ways to encourage behaviour, but the most popular one is to use the new platform's tokens to promote usage and liquidity.

By employing this tactic, the new platform can improve the trade volume, liquidity, and use cases for its tokens.

A vampire attack uses a common protocol to get three essential things:

• Users
• Liquidity
• Trading Volume

SushiSwap, which provided better liquidity rates than UniSwap, the preeminent DEX platform, launched one of the most well-known vampire attack crypto. As a result, a lot of investors moved their liquidity from UniSwap to SushiSwap.

The Vampire Attack of SushiSwap on UniSwap:

On the basis of volume and liquidity, Uniswap is one of the biggest decentralised exchanges. SushiSwap (Fork of Uniswap), a more recent initiative, attempted to topple Uniswap by providing higher rewards for all the liquidity providers.

SushiSwap, a nearly identical protocol that added "community-oriented" features including a governing token and stake rewards to the original Uniswap code within its own platform.

SushiSwap attacked Uniswap in 2020 like a vampire in an effort to attract customers and money, stealing billions of dollars worth of money from its rival and changing the Decentralised Finance (DeFi) landscape in the process.

(Click here to learn about Decentralised Finance)

The SushiSwap vampire attack starts with SushiSwap producing a new token called SUSHI that closely resembles an already existing token.

The attacker then tries to persuade users to exchange their old tokens for the new token by presenting them with more alluring benefits.

Did the attack succeed?

Yes, it did.

In this instance, SushiSwap provided higher returns on investment to liquidity providers (LPs) that shifted from UNI to SUSHI. On the Ethereum Network, 1000 SUSHI tokens are given out by Uniswap to liquidity providers in the targeted liquidity pools, such as LINK-ETH and YFI-ETH.

If the attacker can persuade enough users to move to the new token, which might then result in a decrease in the cost of the UNI token, this technique may succeed.

In the near term, SushiSwap's vampire attack was successful since it was able to deprive Uniswap of liquidity.

Just like the SushiSwap attack on UniSwap, the crypto community saw another attack which was on one of the most famous NFT Marketplaces. Yes, you guessed it correctly. It was OpenSea.

The LooksRare Vampire Attack on OpenSea:

The largest NFT market in terms of trading volume is Opensea. Users may purchase, sell, and trade digital assets thanks to its 2017 introduction. OpenSea supports a wide variety of assets, such as video games, collectables, and works of art.

The number of OpenSea users has surpassed several million as of the initial half of 2020, with a rapid rise in the platform's user base, transaction volume, and the number of transactions.

In an airdrop that took place in line with the platform's launch in January 2022, LooksRare gave out 2 billion LOOKS tokens to the active OpenSea users, representing 12% of the total LOOKS supply.

Users with an NFT transaction volume of at least 3 ETH on the OpenSea platform between blocks 12,642,194 and 13,812,868 received rewards from Ethereum during a six-month period. Additionally, the first NFT transaction on LooksRare based on ERC-721 or ERC-1155 must be made in order to qualify for the airdrop.

By forcing these users to use its platform, LooksRare effectively launched a vampire attack against the OpenSea platform while simultaneously targeting active OpenSea users.

The 2% WETH fee from the users' transactions, on top of the LOOKS incentives, was another benefit that made staking hugely profitable for users. Users that stake LOOKS tokens received a portion of these transaction fees as well.

The LOOKS supply for staking was planned to be allocated to staking users at an ever-decreasing rate throughout four distinct phases, or 6500 Ethereum blocks per day, at specific maturities.

As in other projects with comparable economic models, it could be claimed that this technique attempts to safeguard the token's value by gradually limiting token emission while simultaneously recruiting a sizable user base with strong incentives when the platform is released.

Can we Prevent these Attacks?

With the cryptocurrency industry growing at a very rapid pace, the chances of these attacks would only grow and this threat would continuously haunt even the big players in the market. But, some experienced investors have pointed out a few key points that you should keep in mind to safeguard your investments.

Check for Lock-In Periods:

Many investors don’t know about this concept initially when they start investing. It is very important to know the lock-in period i.e. till the time you won’t be allowed to cash out your investments from a project. Find out if there is a lock-in period and how long it lasts if you are considering investing in a project. Consequently, you can safeguard your money in case the incentivization declines over time.

Implementing Hard features:

A project will attract copycats if it becomes highly well-liked. These imitators will attempt to fork the project and produce their own version of it. The project should make it challenging to fork in order to guard against this. These can be accomplished by adding sophisticated features or by enlisting the support of a sizable community.

Conclusion:

Vampire Attack is a relatively new player in the cryptocurrency space, but they've already generated a lot of heat in the space. Although the attacks themselves do not pose a significant threat to investors, they have been effective in driving users away from current platforms. However, if new investors play it well, these occurrences will create numerous opportunities for them to come and capture significant profits.