The cryptocurrency industry has been accused of being a fraudulent industry, and to some extent, this is true. There are many scams, hacks and attacks that continue to thrive in the industry despite efforts to reduce the number of such frauds.
While some attacks are purely intended for stealing crypto assets, others are more subtle, and are aimed at stealing users of a project. Vampire attacks are an interesting class of attacks that seek to steal users from an existing project to a new one.
We discuss what vampire attacks are, and how they are in crypto, how they work, and examples of them in this guide. We’ll also mention ways by which you can prevent vampire attacks on your project if you think you’re vulnerable.
Imagine a crypto project A, that is forked to create another project B. Project B then breaks out and starts on its own, with better features and offers than project A.
Since A and B are similar in the services they offer, the users of project A start to migrate to B, resulting in A losing users. This is called a vampire attack by B on A.
More simply, it is when a project forked from another project steals users from the original project by offering better services than the ones that the first project does. It is a form of aggressive marketing or growth strategy, rather than outright theft or nefarious activities.
The new project offers better incentives or rewards to users than the original project. If successful, a vampire attack can result in a massive loss of liquidity and network effects of the affected project. In extreme cases, the old project may be completely abandoned for the new one.
Vampire attacks are more commonly found among DeFi and NFT protocols, with most top protocols having been attacked or orchestrated an attack on another project. Vampire attacks are usually distinctly different from other types of attacks. They are in reality, not attacks, but are instead competition between projects, and are legal.
What projects are targeted by vampire attacks?
Some projects are more likely to be victims of vampire attacks than others, even though they are generally more common in decentralized application space. For example, projects that rely heavily on user adoption and liquidity are vulnerable to vampire attacks.
Examples are decentralized exchanges (DEXs), NFT marketplaces, yield farms and any other project that features liquidity pools. Generally, projects with the following features are particularly vulnerable.
High liquidity projects
High liquidity projects offer large pools of capital for the attacker, making the highly attractive to vampire attackers.
Projects with an established user base
An established userbase is a weakness that can be exploited by a vampire attacker because they can easily hijack the established community.
Projects with High fees
Projects that charge high fees can be easily ditched for a similar one that charges lower fees. They are therefore vulnerable to vampire attacks.
Poor innovation projects
A project with poor innovation can be easily replaced with a more innovative one. This makes poor innovation projects prone to vampire attacks if the attacker has a better project.
How to prevent a vampire attack
There are a few ways to prevent vampire attacks on your project. While they are not fool-proof strategies, they can significantly reduce your chances of becoming a victim.
First is the use of lock-in periods. This is a minimum period for which liquidity providers must lock their liquidity even after receiving rewards. Another method is token withdrawal restrictions, which places a restriction on how many LP tokens a user can withdraw.
You can also use decentralized autonomous organizations for voting, which allows users to make decisions on developments of the protocol. Security audits also boost users’ confidence and make them less likely to abandon the project for an unknown one. These are just a few of many ways you can prevent a vampire attack on your project.
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