Just last week, the cryptocurrency industry was still paying attention to the “vampire attack” DEX giant Uniswap’s SushiSwap. As we expected, Uniswap’s governance token, UNI, became a means of combating forks and was officially launched today.
It’s time to think about these questions: Are forks destined to be a zero-sum game? How should the DeFi project defend against vampire attacks and quickly follow the fork? May wish to analyze different bifurcation situations and coping strategies through the four quadrants.
I recently discussed with many project founders and investors the potential impact of DeFi forks and how to design anti-fork (or embrace fork) protocols. More teams are preparing to initiate a fast-following fork in the next few days, and existing projects that have not yet issued tokens are discussing with investors to reorganize their token caps to make them more “fair” (and thus more resistant Fork sex or at least retain that hope).
The battle for the DeFi protocol is about to start, marking the entry of a new era of cryptocurrency, in which competitive positioning and strategy are as important as composability and collaboration.
As a former consultant who used to focus on competitive strategy, I found this pattern very interesting, familiar and fascinating.
But not only literally interesting, the competitive strategy is currently crucial to the creation of valuable, defensible and sustainable cryptocurrency projects and founders in the crypto field.
Forks are not the same
First you have to realize that not all forks are the same. Everyone has different expected results, methods and strategies. Since SushiSwap launched a “vampire attack” on Uniswap two weeks ago, we have now seen many types of forks, some of which are predictable, while others appear to be brand new.
The fast-following forks in DeFi generally have these modes:
Boosting fork: The main purpose of this fork is to pit a lot of people’s money, let a few people make a lot of money, and then choose to start with the next goal. There have been many such examples recently, especially the fork of YFI, the fork of SushiSwap (SushiSwap itself is the fork of Uniswap) and the fork of YAM.
Fast follower fork: This type of fork attempts to invalidate the original protocol or do some better things-modify token allocation, incentive design or key functions. In this type of fork, there are “vampire attacks” that try to steal liquidity from the original protocol, such as YAM (AMPL), YFII (YFI), SushiSwap (Uniswap), Hotdog (Uniswap), Kimchi (SushiSwap), CREAM. (Compound), Swerve (Curve) and so on.
Same-origin bifurcation: This bifurcation links the agreement, interactive interface, brand, and promotion to a specific geographic location, region, customer group, or segmentation. These forks try to take advantage of a deeper understanding and intimacy of certain customer groups. For example, YFII (YFI) provides translations in Chinese, Japanese, Korean, and Thai to connect with users in these markets.
Large protocol fork: Fork from a complete existing protocol to enhance its functions and/or products for existing users. We haven’t seen this happen yet-but they are coming soon.
The newly emerging types of forks:
Governance bifurcation: A protocol that attempts to accumulate governance power in one or more networks by introducing meta governance tokens. Examples include Unipool (Uniswap), PowerPool Concentrated Voting Power (Compound, YFI, Synthetix, Curve, YFI, etc.).
Interactive interface bifurcation: the bifurcation of commonly used interfaces, but introducing new functions, integrations and experiences, encouraging users to switch from the original interface to the new interface. The new interactive interface will include aggregators, data dashboards and wallets. Once you have gained enough appeal, you can swap out some basic agreements.
Cross-chain fork: adopt the existing Ethereum-based DeFi protocol and bring it to the new blockchain or cross-chain fork. I bet that we will see a lot of such content at the Layer 1 public chain level such as NEAR, Polkadot, Cosmos, Tezos, and Tron. Some of them may have been created by the Layer 1 team itself to guide its own DeFi ecosystem.
New application fork: This fork is the use of existing protocols or original elements to create new applications for new user groups. It can be said that the purpose of this fork is quite different from the previous ones-it is not competing for the same users or markets, but creating new markets, use cases and user groups.
By identifying different types of forks, the team can better resist the forks that pose the greatest risk to their protocol. For example, some forks target the same user group and introduce similar products/protocols, while others target new user groups with new products/protocols.
Unsurprisingly, different types of forks, competitive momentum and ways to resist forks will be different. A cookie-cutter approach to resist bifurcations will not work. The agreement may require multiple strategies.
Accept the reality of being forked
Whether we like it or not, we must accept that endless forks (by increasingly savvy and advanced teams) are inevitable-this is the shadow of the benefits that accompany open source software.
Therefore, if it is assumed that all types of protocol forks will happen in the future, what can DeFi founders do to make their protocols more defensive and resilient to deal with future forks?
Can the protocol be designed to change the fork from a zero-sum game to a positive-sum game, so that the fork and the original agreement can achieve a win-win situation?
Rapid bifurcation: deepen the moat and continue to innovate
“Quick forks” are the most common type of forks today, partly because they are relatively easy to execute. However, the defense strategy for rapid forks is not well understood. Many examples such as SushiSwap and Swerve prove that liquidity alone cannot constitute a moat—liquidity provider LP will unsentimentally shift from one agreement to another in order to maximize profits.
To resist the “rapid fork” of new teams and existing teams (such as large agreements), the DeFi agreement should not only deepen its moat in ways other than liquidity, but also organize itself to continuously innovate, to get rid of current and future competition.
Strong economic defense
Minimize the number of tokens allocated by VC, and maximize the number of tokens allocated by users according to the design quota of token allocation to resist fair start-up and provide greater flexibility. Design liquidity retention/growth incentives in the agreement, and potentially consider liquidity migration incentives or re-migration incentives to prevent or attack future forks. Simon de la Rouviere, who proposed the joint curve in 2018, outlined some designs.
User experience UX
Design and provide the best user experience-not only for your protocol, but also for other protocols integrated with it. If you can provide the best experience, you will win and retain users. Establish a user experience that cannot be provided by the fork (such as establishing a chat room for token access through Collab.Land), and design the best overall experience for community members-from the core interface, communication and forums, to governance tools and experience (For example, through platforms such as Boardroom).
Unforkable encrypted social network
Your agreement should focus on acquiring and targeting the highest quality and highest lifetime value (LTV) users. They may be key opinion leaders KOLs in the cryptocurrency field (for example, cryptocurrency founders, cryptocurrency investors), trusted institutions (for example, OTC trading institutions, exchanges, etc.) or specific DeFi communities. Such high-quality communities are not It will be scattered because of the high-yield fork. Through leaderboards, portable pseudonym reputation engines (such as 3Box) or new social experiences (such as token-licensed chat rooms), etc., display this kind of on-chain network and character profiles, so that ordinary users can actually see and feel The eye-catching community owned by your agreement.
Real-world adoption and integration
Let your protocol be adopted and integrated by non-encrypted businesses and systems. The forking team will not do this kind of hard work because it is too time-consuming and laborious. Catch up with a prestigious trusted organization, make it a user of your agreement, and let the world know this information. As new institutions and retail companies enter the DeFi field, this will become particularly important.
DeFi composability and integration
Make your protocol adopted, integrated and whitelisted by other top DeFi protocols. Ensure that your protocol tokens are composable and can be used as collateral in other top DeFi projects, which can help establish and increase the positive network impact of other protocols.
Resources for continuous innovation
Make sure that your agreement can get enough funds (for example, treasury, foundation, VC) for faster innovation in future forks. As they say, “If you don’t innovate, you will die.” Therefore, whether it is through some VC capital or using reverse funds in a fair start-up situation, do not give 100% of your own network to farmers who cultivate short-term income, because they cannot help the agreement to remain competitive in the long-term.
Trusted brand, team and contract
Create a durable brand that is globally recognized, respected and trusted. Under strong leadership, cultivate a highly united team, keep their communication consistent, and uphold principles in specific actions. Plan a response plan for all hypothetical scenarios. Let the smart contract in your agreement be audited, and don’t just stop at “examined by XYZ”. Specify what has been audited and the tests that have been run. Publicly release some audit reports.
Meta fork: fast follow and cooperate
The reason why meta forks are interesting is that it is usually not clear whether they specifically want to support or attack the original underlying protocol—an unauthorized team modifies some form of governance or interactive interface/user experience UI/UX. In these cases, the best way is to contact the team, assume it is in good faith, and establish a collaborative working relationship with it.
If they really want to better support your agreement and community, it would be great to work with them as a true partner. But if the project proves to be a meta-fork, the following two strategies can be considered:
Learn about bifurcations
Use your existing brand and user base to quickly follow the meta fork, and follow the “quick fork” script to learn something. Copy the new products and features of this fork and add them to your existing experience or as a separate project. Worried about meta governance tokens? Create another based on it. Worried about your interface being forked again? Quickly follow and quickly add its functions to your functions. Let the fork team do research and development, and then you will learn how to make your product/protocol better.
DeFi teamed up to create a partnership
Cooperating with other DeFi agreements can not only follow quickly, but also create new functions, integrations and experiences that cannot be provided by the current meta-fork in multiple DeFi agreements. By working together, you can do more work together than you or the fork team alone, and attract and retain users in the process.
Forking in new markets: incentives and integration
The fork that brings your agreement to new markets and new user groups can be ignored or accepted.
In my opinion, finding incentives and eventually integrating homology or cross-chain forks into your current agreement is a stronger and more interesting way to find incentives in a way that is beneficial to both parties and to your agreement.
Integrate forked tokens
Design mechanisms in the protocol to use fork tokens to incentivize and introduce the liquidity of the fork into your own protocol network. For example, combining forked tokens with protocol native tokens can use the token bonding curve to create new or rarer assets.
Staking and guiding the fork
Design a mechanism to encourage the use of your protocol’s native tokens to help mortgage and guide new forks, so that the forks can benefit from your liquidity and grow (and in the process, increase the use of your protocol’s native tokens). Further encourage the fork to integrate with your native protocol, so that the fork can access and benefit from the user network, tools, experience, etc. of your protocol.
Fork integration rewards
Design incentives to encourage forks to integrate with your protocol, thereby bringing branch users, tools, and experience networks into your protocol, and vice versa. You can also consider hiring an integration manager to support the fork.
Shared infrastructure
Create the infrastructure used by your protocol and provide it to the fork (perhaps as a return for integration), such as shared issuance ramps, wallets, user profiles, social graphs, databases, and documents.
Forked Ecosystem Fund
The DAO, a decentralized organization managed by the treasury, foundation or community, allocates tokens to support the creation, growth, and integration of forks into the protocol.
New application fork: investment and integration
For forks that use your protocol or native elements to find new applications and users, you should invest and integrate them when appropriate.
For this reason, your agreement may require the establishment of an ecosystem or community development fund to make such investments. For example, the current practice of many DeFi founders is to provide angel investment.
However, this type of approach can be made more structured by establishing agreements equivalent to corporate venture capital departments. Investing in new applications will also help your agreement discover new markets, products, services and agreements outside of your core area, which may bring new major growth opportunities.
The fork is exactly what DeFi needs
Although I have listed these ideas in the previous article, what we are currently seeing is still relatively primitive. For the strategy of forks and defenses and acceptance of forks, it is just the tip of the iceberg.
However, it is hoped that these frameworks will help the DeFi protocol team think about the scope of possible forks, potential responses and strategies, and enable the crypto ecosystem to turn forks (currently a zero-sum game) into a positive-sum game. Find new ways to make the fork positive and accept the fork, because the fork can help quickly realize the decentralization of the protocol and spread it to new markets, user groups, and applications in a way that only forks can achieve Scenes.
