To put it simply, a vampire attack is when one DeFi protocol offers better rates to attract investors from another platform to theirs.
Before we get into talking about Sushiswap, it’s important to understand what an Automated Market Maker is because they are what is getting attacked… and you can watch our video over that with the link in the description. Essentially, they are pools of money that allow traders to trade. The traders pay a very small fee that goes to the investors who supplied the initial amount of money. So it creates a win-win situation, the investors earn rewards, while the traders get to trade without having to find another trader to transact with.
One of the most famous vampire attacks happened with Sushiswap – they simply were able to offer one of the best liquidity provider rates to any investor on their platform. Doing so meant a lot of people pulled out their liquidity from Uniswap and invested it with Sushiswap instead.
A vampire attack attempts to gain 3 things from another popular protocol: liquidity, users, and both of these mean trading volume.
So how did Sushi Swap do it?
Sushiswap was created by an anonymous person who dubbed himself Chef Nomi.
SushiSwap simply created a vampire attack by offering their native tokens (Sushi) as a reward for liquidity providers. In fact, at the beginning, these rates were up to 1000% APR. Within only a few hours of their launch, they reached over $150,000,000 of value in tokens invested into liquidity on their platform.
You might be wondering “why in the world would you spend so much time and money creating a protocol for traders, if you don’t get anything out of it?” You’re right, because Chef Nomi is anonymous, he doesn’t even get fame, but there was a part of the protocol that gave his developer wallet around 10% of sushi tokens. Due to this, he accumulated a very large amount of Sushi that was supposed to be used for developing the protocol further. Everyone was surprised when he took $14,000,000 worth of Sushi Token and traded it for Eth. It looked like a rug pull, and it basically was, but this was one of the largest trading protocols available at the time, so everyone was confused.
So that answers the question – he created it anonymously and worked really hard to making it big so he could have a $14,000,000 payday, which crashed the price of Sushi 73%. After this, the protocol still worked, people could still trade tokens, but a lot of trust was lost. Due to this, Chef Nomi gave his ownership of Sushiswap to Sam Bankman-Fried. SBF increased the rewards to Sushiswap providers and attempted to grow the protocol even more.
There’s more to the story though, Chef Nomi came back and returned his $14,000,000 to the dev fund, but that’s a story for another video. If you’d like to see the full history of Sushiswap in our animated format… please leave a comment below, as we are not sure if this is something worth covering since it’s more of a news event than a protocol definition.
Why They are Good and Bad?
Now you might be thinking “Sushi Swap taking their customers is a bad thing” but just like taking your girlfriend, there are pros and cons to it.
The pro is that competition leads to better rates for both traders and liquidity miners. In the case of your girlfriend, if someone comes along and is like “hey, you should switch to the dark side” to your girlfriend, hopefully that motivates you to be a better boyfriend and overall better person… which is beneficial to both you and your girlfriend. Having competition in the DeFi space is very beneficial in many aspects.
A bad characteristic of a vampire attack would be that Tokens minted by platforms are unpredictable. We don’t know if someone who farmed a bunch of tokens might decide to just dump them into the market, greatly lowering the price. In other words, a vampire attack could be malicious, getting investors to take their money from a truly beneficial protocol and to deposit it into their risky, fraudulent protocol simply by offering higher rewards.
Now that you know what a Vampire Attack is and how it was performed. Now, if you were in Chef Nomi’s position would you do the same? We would love to hear your reply in the comments below!
We hope you enjoyed today’s video, we really hope you learned something, and most of all we hope to see you in the next video.