KLEX Protocol launches ‘vampire attack’ on KLAYswap to attract cash

Klaytn’s blockchain network’s newest decentralized finance (DeFi) initiative, the KLEX protocol, has launched a vampire attack to lure deposits from competing DeFi protocol KLAYswap. According to an official tweet, KLEX launched the vampire attack on August 29, allocating $600,000 KLAY tokens and 15 million KLEX tokens as incentives 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 rates of return than another, helping to attract customers and investors. Just as a bank may offer higher interest rates on deposits to attract users from other banks, DeFi engages in similar practices. The underlying point of a vampire attack is to create powerful incentives for liquidity providers to migrate their liquidity to another platform.

KLEX’s ongoing vampire attack reflects the protocol’s desire to amass as much liquidity as possible in the form of deposits by offering the highest rates of return for DeFi depositors in the Klaytn blockchain ecosystem. Users who migrate and deposit funds into liquidity pools can enjoy these returns. Deposits for the ongoing “Vampire Attack” will remain open for 48 hours, with participants being able to choose to deposit their funds in multiple liquidity pools.

Using “vampire attacks” to generate cash

Vampire attacks are gradually gaining prominence in the blockchain ecosystem as a potential marketing tactic. DeFi applications and protocols depend on liquidity to operate; without any trading activity, a pool of liquidity eventually dries up.

Through a vampire attack, a newly created project aims to attract liquidity, users and trading volume from other already established platforms. 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 DeFi’s most famous vampire attacks was carried out by SushiSwap. Although an offshoot of Uniswap, SushiSwap has implemented a more advantageous incentive mechanism to attract liquidity providers looking for the best rates of return.

Built by the anonymous “Chef Nomi,” SushiSwap has positioned itself as the decentralized, community-run alternative to venture-backed Uniswap. At that time, Uniswap was growing rapidly by offering liquidity providers LP tokens to provide liquidity on its platform. Post-launch, SushiSwap began offering additional incentives in the form of SUSHI tokens to liquidity providers who would stake Uniswap’s LP tokens on SushiSwap, which initially saw returns as high as 1000% APR.

SushiSwap’s vampire attack on Uniswap was so successful that just hours after launch, over $150 million worth of LP tokens were deposited into its newly created liquidity pools. Just 11 days after launch, the total value locked (TVL) reached $1.8 billion. Meanwhile, when Uniswap’s liquidity providers migrated their LP tokens to SushiSwap, it drained around $800 million in liquidity from Uniswap.

Other similar cases include the Swerve protocol launching a vampire attack on Curve.fi, where it drained nearly $400 million of TVL from the latter within days.

Disclosure

About Jimmie T.

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