Anti-forking strategy of DeFi products


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Translation & Proofreading: Min Min & A Jian

Since the release of “Quick Fork Products in DeFi” a week ago, I have discussed with many founders and investors the impact of forks and how to design anti-fork (or pro-fork) protocols. Many teams are preparing to release rapid-formed fork products, and existing projects that have not yet issued tokens are also discussing with investors to reconstruct their token issuance cap table to make it more “fair” (and thus more resistant to forks, at least I hope so).

This agreement battle has officially come, marking the birth of a new cryptocurrency era. This means that competitive positioning and strategy are no less important than composability and collaboration.

As a former consultant who specializes in competitive strategy, I find this phenomenon very interesting, attractive, and deja vu.

However, this requires more than just ingenuity. Nowadays, for crypto projects and founders, competitive strategy is the key to building valuable, attack-resistant, and enduring products.

Not all fork products are the same

The first thing to be clear is that not all fork products have a virtue. Each forked product has different expected results, methods and strategies. Since Sushiswap launched a “blood-sucking attack” on Uniswap two weeks ago, many forked product prototypes have emerged-some of which we expected, and some are emerging.

Rapid Prototyping Bifurcation Products in DeFi:

  • Pull-up shipping type bifurcated products : The purpose of this type of bifurcated products is to allow a few people to cut the leeks of the majority, and then switch to a forked product to continue cutting. There have been many such fork products recently, including YFI fork products, Sushiswap fork products (Sushiswap itself is a fork product of Uniswap), and YAM fork products.
  • Rapidly forming fork products : The purpose of this type of fork products is to replace the original agreement, or to achieve small improvements on the basis of the original agreement, such as token distribution, incentive mechanism design and key functions. This is what I mean by “blood sucking attacks”: these forked products will steal the liquidity of the forked products. Typical examples are (the original product being forked is placed in parenthesis): YAM (AMPL), YFII (YFI), Sushiswap (Uniswap), Hotdog (Uniswap), Kimchi (Sushiswap), CREAM (Compound), Swerve (Curve) )Wait.
  • Marketing bifurcated products : The purpose of such bifurcated products is to adapt their agreements, interfaces, brands, and information delivery to specific geographic locations, regions, customers, and market segments. This type of forked product has the advantage of in-depth understanding and intimacy of the client. For example, YFII (forked from YFI) has translations in Chinese, Japanese, Korean, and Thai to establish connections with users in these markets.
  • Large agreement fork products : This type of fork product is derived from an existing well-known agreement and can provide existing users with more functions and/or products. There is no such fork product, but it is expected to be seen soon.

Emerging fork product prototype:

  • Governance-type fork products : This type of agreement attempts to centralize the governance of one or more networks by introducing meta governance tokens. Typical examples are Unipool (Uniswap), PowerPool centralized voting power tokens (Compound, Synthetix, Curve, YFI, etc.), and so on.
  • Interface-based fork products : copy the commonly used user portal products in the circle, introduce new functions, integrations and experiences, so as to attract users from the original products to transfer to the fork products. Common areas for such forks include aggregators, statistics panels, and wallets. Once enough users are attracted, the forked products of this kind of interface can replace some of the underlying protocols.
  • Cross-chain bifurcation products : This type of bifurcation product can transfer the existing DeFi protocol based on Ethereum to a new chain, or realize cross-chain interaction. I bet that there will be many cross-chain fork product projects on Layer 1 blockchains such as NEAR, Polkadot, Cosmos, Tezos, and Tron. The Layer 1 blockchain team itself may also create cross-chain fork products in order to develop the DeFi ecosystem.
  • New application fork products : This type of fork product will use existing agreements or originals to create new applications for new user groups. It can be said that this type of forked products has a completely different purpose-not to compete with the original chain for the same users or markets, but to create new markets, application scenarios, and user groups.

After clarifying the differences between different fork product prototypes, each team can better resist the fork products that threaten them the most. For example, some forked products target the same user group and introduce similar products/protocols, while other forked products target different user groups and introduce new products/protocols.

DeFi 产品的抗分叉策略

You may have expected that for different fork product prototypes, we need to adopt different methods to defend against fork product attacks. There is no universal solution. Each agreement team may need to develop multiple strategies.

Let’s face it: forks are endless

Whether we like it or not, we all need to accept the fact that forks are endless and inevitable (there will always be a more skilled team to fork). This is the disadvantage of open source software. Therefore, if we assume that each of the above-mentioned forks may occur in the future, what measures can the founders of DeFi take to make their protocol better resistant to possible future forks? Can the design of the DeFi protocol transform the fork from a zero-sum game to a positive-sum game, so that both the fork product and the original chain can benefit from it?

1. Fast fork: strengthen defense, innovation to win

DeFi 产品的抗分叉策略

“Quick forks” are by far the most common type of forks, partly because they are relatively simple to execute. However, there is no good strategy for how to resist rapid forks. As projects such as Sushiswap and Swerve have shown, mobility alone cannot be a “moat”. Liquidity providers will switch from one agreement to another in order to maximize their benefits.

In order to resist the “quick fork” attacks from emerging teams and existing teams (for example, large agreements), each agreement should use methods other than liquidity to enhance its defenses, while continuing to innovate to maintain competitiveness.

Strong economic defense

On your token issuance cap table, reduce the number of token holdings of venture capital institutions as much as possible, allocate as many tokens as possible to users (thus preventing someone from splitting on the grounds of unfair distribution), and enhance flexibility Sex. Design an incentive mechanism in your agreement to attract/retain liquidity, and think about how to use liquidity migration anti-incentive mechanism or re-migration incentive mechanism to prevent and/or attack fork products. In 2018, Simon de la Rouviere introduced the design of such mechanisms.

user experience

Design and provide the best user experience-this is not only for your own agreement, but also for other agreements that integrate your agreement. If you provide the best experience, you can win and retain customers. Create a user experience that cannot be provided by forked products (for example, the token permission chat room provided by Collab.Land), and design the best overall experience for community members—from the core interface, to communication and forums, to governance Tools and experiences (for example, through platforms such as Boardroom).

Non-forkable product social network

Focus on attracting and retaining those users with the highest quality and the greatest lifetime value. They can be key opinion leaders in the cryptocurrency field (for example, the founders and investors of the cryptocurrency industry), trusted institutions (for example, over-the-counter trading platforms and exchanges), or they will not fork in high yields The DeFi community that was shaken when it appeared. Display users’ chain connections and personal information through leaderboards, simple anonymous reputation engines (such as 3Box), or new social experiences that allow people to truly feel the atmosphere of the community (such as token permission chat rooms).

Real-world adoption and integration

Let companies and systems outside the cryptocurrency industry adopt and integrate your protocol. Challenge some difficult tasks, forked product teams will not bother to do these. Let well-known and trusted institutions become your users and increase your global visibility. As more and more institutional users and individual users participate in DeFi, this will become particularly important.

DeFi composability and integration

Let other top DeFi protocols adopt, integrate your protocol, and whitelist it. Ensure that your assets are composable and can be used as collateral in other top DeFi protocols, bringing more positive network effects to these protocols.

Have the resources needed for continuous innovation

Make sure that your agreement can get enough funds (for example, to establish a treasury, foundation, or obtain venture capital) to achieve continuous innovation, in case it is exceeded by forked products in the future. “If you don’t innovate, you will die.”-Therefore, whether it is through venture capital funds or the establishment of a foundation under fair distribution, do not give 100% of the network to short-term arbitrageurs, because they will not help the agreement maintain long-term competitiveness .

Trusted brand, team and contract

Create a long-lasting brand with global reputation and credibility. Create a unified team through strong leadership, maintain consistent external communication, and follow the same principles of action.

Prepare a plan for handling all situations.

Perform a security audit of your contract. Don’t just disclose the “audit by XX”, but specify in detail what security audits and tests have been conducted. Open part of the audit report to the public.

2. Meta fork: follow up quickly and establish cooperation

DeFi 产品的抗分叉策略

The interesting thing about meta forks is that we usually don’t know how they intend to support/attack the underlying protocol (some form of governance or UI/UX abstraction). In these situations, the best way is to contact these teams, assume they are in good faith, and establish a cooperative relationship with them.

Who knows, if they really want to better support your agreement and community, they might as well become true partners. However, if they have bad intentions, they can consider the following two options:

Quickly follow up on the fork , and use your existing brand and user base to quickly follow up on the meta fork. Copy the new products and features of the meta fork, add them to the existing experience of your product, or as an independent project. Worried about the issuance of governance tokens by the meta fork? Then you also issue one. Worried about them forking your user interface? Then add their functionality to your user interface. Let the research and development of forked products turn into perfecting your product/protocol.

Establishing a co-creation relationship and cooperating with other DeFi agreements can not only follow up quickly, but also create new functions, integrations and experiences with multiple DeFi agreements, which is not yet possible for meta-fork. By establishing partnerships, you can do far more than relying on yourself or fork products, and at the same time attract and retain customers.

3. Forking towards new markets: incentives, integration

DeFi 产品的抗分叉策略

If it is a fork for a new market or a new user base, you can ignore them, or you can accept them. In my opinion, you should think more about how to accept such forks: how to find ways to incentivize and ultimately integrate those marketing forks or cross-chain forks to get a win-win result.

Integrate forked product tokens

Design a mechanism to use forked product tokens in your agreement to incentivize the liquidity of the forked product to transfer to your network. For example, combine the tokens of the forked product with your tokens to create a new/rare asset that adopts the token union curve.

Provide collateral for forks

Design mechanisms to incentivize users to use your tokens as collateral on new forks, so that fork products can use your liquidity to achieve growth (while also allowing your tokens to have new use cases). Further incentivize the integration of forks into your protocol, so that forks can access your users, tools, experiences, etc., and benefit from them.

Fork integration incentive mechanism

Design a reward mechanism to encourage the integration of forks into your agreement, so that both parties can benefit from each other’s users, tools, and experiences. You can also consider hiring integration managers to support the fork.

Shared infrastructure

Create infrastructure for your protocol and provide it to forks (perhaps as a return for integration), for example, shared fiat entry/exit, wallet, user profile, social graph, code base, and documentation.

Establish an ecological fund for the fork

Set aside some tokens for the establishment of treasury, foundation or DAO managed by the community to support the creation and development of fork products and the integration with your agreement.

4. New application bifurcation: investment, integration

DeFi 产品的抗分叉策略

For forks that use your agreement or original to create new types of applications, you should provide investment for them and integrate them into your agreement when appropriate. For this reason, your agreement may require the establishment of an ecosystem or community development fund to make such investments.

For example, many DeFi founders are now participating in angel investment. However, a more structured approach is also possible, which is to set up a “venture investment department” for your agreement. By investing in new applications, your agreement can explore new markets, products, services, and agreements, thereby seizing new opportunities that can achieve significant development.

Forking can meet the needs of DeFi

Although many ideas are listed above, DeFi is still in its early stages of development. Right now, we can only see the tip of the iceberg regarding the development of forked products and defense strategies.

However, these frameworks provide the DeFi team with good ideas, including the scope of the fork, potential countermeasures and strategies, how the cryptographic ecosystem should transform the fork from a zero-sum game to a positive-sum game, and how to find new ones. The way to accept forks, because forks not only help promote the decentralization of the protocol, but also open up new markets, users, and applications in its own way.

If you are developing a fork product or a project party exploring an anti-/pro-fork defense strategy, please contact me. I hope to learn more.

I would like to thank the founders such as Kevin Nielsen, Alexander Angel, Blake West and James Duncan, Anil Lulla and Medio Demarco from Delphi Digital, and my colleagues at IDEO for their feedback on this article.