Do you believe in Vampires? Does it exist in this digital age?
Vampire, a European folklore, who drinks blood on the living by biting its neck with their long pointed canine teeth.
Yes, it does! But not the one named Dracula. 😅 so start reading this article to know what i'm talking about.
This is Ray from the country Philippines once again. Hope you have a great day today!
In my previous article about UNISWAP, i said something about SUSHISWAP. This is the one that started the so called Vampire attack.
Check my article about UNISWAP. 🤗
So what is a vampire attack? And how was SUSHISWAP able to use vampire attack to attract $1billion worth of liquidity in less than a week?
Lets begin to answer this question.
History of Sushiswap
In the 28th of August 2020, in the midst of new DeFi projects popping out everyday, a new project SUSHISWAP launched.
The project gained more and more attraction in the DeFi community as it aimed directly competing with UNISWAP by forking the project and seizing out liquidity with a process later called a vampire attack.
The main goal of the project was to create a community governed automated market makers and further distribute its token, SUSHI.
Concept of Vampire Attack
The concept of vampire attack, although quite simple is ingenius in it's nature, as it creates very strong incentives to the liquidity providers to migrate their liquidity to a new platform.
Steps on how the vampire attacks initiated
The first step is to provide incentives for the liquidity providers of another platforms to stake their LP tokens which represents supplied liquidity to a new platform.
In SUSHI's case, UNISWAP liquidity providers are incentivise to stake their LP tokens on SUSHISWAP so they can get rewards in the form of SUSHI tokens
SUSHISWAP started aggresive in distributing it's SUSHI token. 1000SUSHI per ethereum block distributed for UNISWAP liquidity provider across different pools such as SNX-ETH, LEND-ETH, YFI-ETH and LINK-ETH
The idea to involve multiple DeFi communties had already been successfully used by YAM and was reused by SUSHISWAP
Once enough liquidity is attracted to a protocol, the first step is done.
The second step of the vampire attack is to stake or migrate LP tokens to a new platform. By doing this a new platform can use the migrated liquidity for their own automated market maker stealing not only the liquidity but also the trading volume of the users of the first platform.
The liquidity is sucked out in the previous platform to a new platform, hence the name vampire attack is coined.
When it comes to SUSHI, this is where masterchef contract comes to play.
The Masterchef contract, once triggered is able to migrate LP tokens from UNISWAP to SUSHISWAP, basically stealing UNISWAP's liquidity.
Once liquidity have been migrated, it can be instantly used for trading on SUSHISWAP.
To encourage liquidity providers to migrate, some extra incentives are applied.
The sushi liquidity mining program would continue after the migration but with a decrease commision by 100 tokens per block
People who decided to stake their SUSHI token instead of selling them will be given a chunk of trading fees in the SUSHISWAP
At the end of a successful vampire attack, a new protocol should capture a significant amount of the original amounts of the liquidity, users and trading volume.
This is basically a vampire attack is planned. In practice, there are few unforeseen plans that happens along the way.
SUSHISWAP Launch
SUSHISWAP led by an anonymous creator Chef Nomi started attracting a lot of capital straight after the launch.
Liquidity providers are attracted by high APY of between 200-1000%. They started moving more and more UNISWAP's LP tokens into SUSHISWAP. A few hours, after LP tokens is enabled, SUSHISWAP reached $150million total volume liquidity.
The initial problem of Chef Nomi having an admin key to the migration contract is quickly resolved by transferring his admin power to a time lock contract, adding a 48 hour delay triggering the admin functions.
Although SUSHI contracts were launched unaudited, the projects attracted several audits from some notable security companies.
Chef Nomi also decided to start governance of SUSHI where SUSHI-ETH LP tokens could be use for voting. Yield farming continues...
In the 1st of September, Binance announce the listinf of SUSHISWAP that resulted in the increase of price of SUSHI as high as $15.
A couple of days later and now we are talking about $1billion in locked value. On top of that, a couple of security audits were completed with no critical or high severity issues found.
On the 4th of September, one of the biggest holder of SUSHI, Sam Bankman Fried, the CEO of FTX and Almeida Research came out with a future proposal for migrating part of SUSHISWAP to a new trading platform SERUM build in solana block chain.
In the meantime, the community voted early migration from UNISWAP to SUSHISWAP to incentivise liquidity provider with high token distribution for a few extra days after the migration.
On the 5th of Semptember, Chef Nomi sold his entire SUSHI stake for about $14million worth ETH. This is possible because although SUSHISWAP did not have Pre Mine or initial Team allocation, it has dev fund where 10% of all distributed tokens were allocated and with Chef Nomi having admin keys.
The community lost trust to Chef Nomi after doing the selling and later left the project. This lead to an event where Chef Nomi transferred the control of the project to Sam bankman Fried who decided to be the saviour of SUSHISWAP by providing more incentives to the liquidity providers to stay for the migration.
SBF initialised to transfer the admin keys to a multi seed address.
The migration of liquidity to the SUSHISWAP platform was carried out by SBF on the 9th of September. From the peak of $1.2billlion of locked value, around $840million was left for the migration.
Everything wents smoothly with all the liquidity moved to SUSHISWAP allowing trading of the tokens supported by the migration.
Because of the early migration, there is high emission schedule of 1000 SUSHI per block then later will be dropped to 100 per block or even 50 per block if voted in by the community.
It still remains to be unseen if the liquidity will still remain on SUSHISWAP after the high reward period is over.
Was that the end of unexpexted events?
The night before the migration, Chef Nomi came back to the project along with $14million worth of ETH to the dev fund and apologize to the community
Clearly SUSHISWAP is one of the most polarising project.
We need this kind of things to strenghten the DeFi space and to become resilient in the future.
Any opinions and suggestion? Please just leave a comment below. Watch out for my next article.
Thanks for your time! God Bless!
