That's a lovely protocol you have there.
It would be a shame if someone...
Completely undercut the deal you're offering and stole all your users.
What is a vampire attack?
A vampire attack in crypto is when a new project — sometimes a fork of an established project — offers better incentives or rewards than the original. Key characteristics of a vampire attack include a new project aiming to outdo another project with very similar features or a project looking to steal competitors’ resources and customers who provide critical liquidity.
Sound familiar?
Basically the entire DEFI 2020 rally was just one big vampire attack. The first AMM yield farms offered massive rewards to liquidity pools that weren't even paired to their token. Examples of this would be LPs like BTC/ETH or BTC/USDT. Why would they allocate so much yield to liquidity pools that don't even help the main token? Ah well it was all a short-term play whether they knew it or not. By offering those yields they got the attention they needed for a short term pump. Only a fraction of those users needed to buy the actual token to see great success in the short-term.
And then what happened?
Other people saw this success and they copied the model. All the new projects could always offer higher yield than the old projects because everything was a completely unsustainable hyperinflationary Ponzi. Ah, I miss those days of 3000% APRs. So ridiculous and hilarious, but not as funny as the people who thought it would somehow become sustainable and survive a bear market. Of course even I held out hope that this would be the case. Lesson learned.
DEFI 2020 was the ultimate macro vampire attack across the board because it leaned into the degeneracy. Everyone wants to buy the shiny new thing and hope for a 1000x. Offering higher yields than competitors was easy because it was never sustainable in the first place. Everyone jumped from one project to the next within the shitcoin casino hoping to dump on the laggards. I personally saw fortunes lost and recovered in a matter of days multiple times. We've yet to see anything even close to that this time around even with all these ridiculous meme coins, and that's probably a good thing.
A new project conducting a vampire attack will ensure it offers high incentives, like airdrops and aggressive marketing to the existing project’s community. It will incentivize users to move their liquidity from the existing project and quickly try to increase their own liquidity pools and volume. Afterward, it will try to retain its new users.
Hold on a tick...
This is EXACTLY what Fidelity and Blackrock just did to Grayscale. By offering significantly lower fees on their BTC ETFs Grayscale bled out billions in Assets Under Management. At first it seemed like it would be worth it for Grayscale to keep their fees high but eventually the bleed was too strong and they were forced to capitulate. Serves them right honestly they were a bit greedy with their 2% fee per year or whatever it was.
And now Blackrock is saying their going to launch their own stock exchange in Texas. Surely they will use tactics that try to bleed value from NYSE... so is a vampire attack really a vampire attack... or is it just basic competition within a capitalistic system of incentives? I guess that just depends on our perspective and perceived connotation of the situation. Surely "vampire attack" sounds a lot more negative than "healthy competition"... not that anything about DEFI 2020 could be labeled as "healthy".
Attacks can lead to greater competition and encourage projects to innovate and work harder to retain customers. However, they can also damage the market and steal user funds.
If you can't explain the yield you are the yield bruv.
Yep when people chase yields they don't really care about anything else than the yield. What's the economic policy. Don't care. How trustworthy are the devs? Doesn't matter gonna dump in a week anyway. All that mattered was the number next to APY; beyond toxic.
The lack of IP makes the attack easy.
In the legacy world any company can patent their work and make sure no one else can steal it while turning a profit with their invention. In many respects this prevents the vampire attack from occurring in the first place. Even if there was no patent or IP: the company isn't required to open-source their entire business which is somewhat expected in crypto. It's a lot easier to copy and clone someone else's work when it's just sitting on a public Github.
With this in mind we have to recognize that there is a reason why things are the way they are. There's a reason people need a license to drive and even to fish. These permissions didn't used to exist and they were fabricated for a reason, just like IP laws and their associated cease-and-desist orders.
There's a weird dichotomy here in which it is believed that patents and the ability to own ideas on a legal level fosters innovation by providing the proper incentives. However there's also an equal and opposite argument to be made that these patents and ownership completely kill innovation by allowing companies to burn the bridge behind them and not allowing citizens to experiment with the infrastructure they've built. It's very much a double-edged sword, just like permissionless crypto acting as the foil to this paradigm.
Conclusion
Is a vampire attack really just basic competition between two competing systems? I guess it just depends on how we define it. Considering that most vampire attacks in crypto inevitably lead to a lot of people losing all their money I think we do have to recognize that there's a lot of nuance when it comes to sustainability and intent.
For example, I would say that Thorchain's lending protocol is not a vampire attack against MakerDAO/DAI lending because personally I believe that DAI's interest rate is exploitative, absurd, and nonsensical. Sometimes the first project is greedy because they are the only game in town so they charge fees that shouldn't exist (just like Grayscale did with their BTC ETF). In these situations it's proper and correct to undercut the greedy goblins. But if the new model is completely unsustainable and doomed to crash to zero that's obviously a problem. Hindsight is 20/20 in that regard to be sure. It's hard to know one way or another until the new thing survives a bear market.
Vampire attacks happens a lot in crypto but it keeps me wondering if the counterfeit project has the tendency to overshadow the original?
Also, can we see some meme coins as vampire attacks to BTC or others?
I recently saw a video from a well-known crypto booster that mentioned two memecoins with extremely low market caps touting their potential for K%'s of rise with but a few folks jumping on the bandwagon - which surely happened as a result of the shout out on his widely watched content.
Classic pump and dump in the wake of Monero delisting (almost banning) that limited the upside from the more established coin.
There's basically two strategies crypto investors generally fall into: buy and HODL, or pump and dump speculation. Given the hostility to privacy coins (and privacy generally) that is being realized lately, investors are being forced into the latter camp. This is not good for the market in the long run, even if savvy pumpers can snag large windfalls in the short term when they well-time their dumps.
Wow that's a clearly perfect term for this.. in that case I've seen quite a lot of vampire attacks going on right now. In my opinion it's almost like a jungle out there in the crypto world, with projects battling it out like predators hunting prey. But sometimes, the hunt for higher yields can lead to a bloodbath for investors. It's a risky game where winners and losers are hard to predict. But also based on the description can I say that Amazon dishes out a constant Vampire attack on any start-up by reducing the prices of some of their products so low that it's nonprofit to them. Just so the other start-ups can't make products cheaper than that so Monopolizing the entire market 🤔
Interesting viewpoint on Vampire attacks and capitolism. I must admit your point makes sense. It's not really unfair competition, it's just competition. Deal with it, that's how services and UI's improve for the end user, competition, and certaily the competition between the ETFs produced better offerings for the customer. Before it was just greyscale and we had to take it or leave it. Now we can pick the best deal. But unlike most inflationary defi coins this one is inflationary, so we can hold it for the longterm. Tradi Fi finally did me a solid.
Now all I need is for Bitcoin IRA to figure out a way for me to roll my 401k into their company, so I can put it all on orange. LOL!
Same business principles, modern tactics.
Thanks for this article. 👍
Tech advance is a constant bleeding of legacy production tooling and industry. Reducing costs, increasing productivity, and decentralizing production continually outcompete OG producers.
Good.
Thanks!
in crypto vampire attack happens frequently .
Awesome insight.
There are closed source defi projects at this point. Kujira is the only one that I am aware of, but I am sure that there are others.