The Klaytn blockchain network’s latest decentralized finance (DeFi) initiative, the KLEX protocol, has launched a vampire attack to attract deposits from rival DeFi protocol KLAYswap. According to an official tweet, KLEX launched the vampire attack on August 29 and distributed $600,000 worth of KLAY tokens and 15 million KLEX tokens as an incentive to lure users and investors away from KLAYswap.
In the context of DeFi, a “vampire attack” is a technique where one DeFi protocol offers better returns than another, helping to attract customers and investors. Just as a bank can offer higher interest rates on deposits to attract users from other banks, DeFi practices similar practices. The fundamental point of a vampire attack is to create strong incentives for liquidity providers to migrate their liquidity to another platform.
KLEX’s ongoing vampire attack reflects the protocol’s drive to amass as much liquidity in the form of deposits as possible by offering the highest returns for DeFi depositors in the Klaytn blockchain ecosystem. Users who migrate and deposit funds into the liquidity pools can benefit from these returns. Deposits for the ongoing “Vampire Attack” will remain open for 48 hours, with participants being able to choose to deposit their funds across multiple liquidity pools.
Using “vampire attacks” to increase liquidity
Vampire attacks are gradually gaining traction in the blockchain ecosystem as a potential marketing tactic. DeFi applications and protocols rely on liquidity to function; Without any trading activity, a liquidity pool eventually dries up.
A newly created project aims to attract liquidity, users and trading volume from other already established platforms through a vampire attack. The first step in a vampire attack is to offer high incentives to liquidity providers currently using different platforms to deposit their liquidity pool (LP) tokens on a new platform.
One of the most famous vampire attacks in DeFi was carried out by SushiSwap. Despite being an offshoot of Uniswap, SushiSwap implemented a more beneficial incentive mechanism to attract liquidity providers looking for the best returns.
Built by the anonymous “Boss Nomi”, SushiSwap positioned itself as the decentralized and community-managed alternative to the venture-backed Uniswap. At the time, Uniswap was growing rapidly by offering liquidity providers LP tokens for providing liquidity on its platform. After launch, SushiSwap began offering additional incentives in the form of SUSHI tokens for liquidity providers who would stake Uniswap’s LP tokens on SushiSwap, which initially yielded returns of up to 1000% APR.
SushiSwap’s vampire attack on Uniswap was so successful that more than $150 million worth of LP tokens were deposited into its newly established liquidity pools within just hours of launch. Just 11 days after launch, the total locked value (TVL) reached $1.8 billion. When Uniswap’s liquidity providers migrated their LP tokens into SushiSwap, it drained around $800 million of Uniswap’s liquidity.
Other similar cases include the Swerve protocol, which launched a vampire attack on Curve.fi, where it siphoned nearly $400 million from the latter’s TVL in a matter of days.
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