In a game of liquid mining, miners are only loyal to returns and profitability, not to the platform.
Original title: “Sushiswap’s conspiracy, how do vampire attacks “steal” liquidity? 》
Written by: Li Feng
When looking back on the DeFi boom in 2020 a few years later, Sushiswap will definitely be an iconic existence.
The rapid rise to lock up more than 1 billion US dollars, the rapid launch of three major institutions, the price plummeted by 90% after the skyrocketing, the founders cleared their positions, transferred control to the FTX founders, the bottom doubled, and the liquidity migration… Within a few days , This DeFi series has ups and downs, and you can never guess what will happen in the next scene.
Unconsciously, Sushiswap was already standing in the center of the stage, and Uniswap beside him began to roar angrily. He was originally the “unicorn” enjoying the glory.
Looking back on the rise of Sushiswap, it seems that it can be summarized as a “Yuan Shikai-style victory”, parasitizing Uniswap, sucking fluidity, and usurping the fruits of the revolution.
This is a conspiracy, relying on the vampire attack on Uniswap, Sushiswap succeeded in gaining power.
Weaknesses of Uniswap
Undoubtedly, Uniswap, which has been dormant for two years, should have been the most dazzling star in the DeFi boom, a veritable “unicorn”.
However, Sushiswap, which came out halfway, relied on the fork of Uniswap, locked up 1.4 billion US dollars in just one week, accounting for 75% of Uniswap’s liquidity, and became the biggest winner for a while.
Sushiswap stole the fruits of victory with integrity, which caused Uniswap founder Hayden Adams to scold:
“Sushi is just something created by any capable developer through a day’s hard work. This is just a’whale game’ played by giant whales, trying to profit from the value created by the hype Uniswap.”
Hegel said that “reality was shown to be inevitable in its unfolding process.” Uniswap’s surprise attack naturally proved its own loopholes. Uniswap’s weaknesses also gave other competitors the opportunity to overtake in corners.
The first weakness is the performance of the public chain.
The first dilemma that restricts Uniswap lies in the performance bottleneck of Ethereum, the slow transaction speed, high handling fees, and more overlord clauses, transfer failures, and handling fees are not refunded.
According to OKLink data from Oukeyunchain, on September 2nd, the total network handling fee of Ethereum hit a record high, breaking 40,000 ETH, and the recommended gas fee reached 519.95Gwei, which is the highest recommended gas fee in the history of Ethereum, for each transfer The handling fee is higher than $40.
The price of the currency did not rise, and it was first harvested by Gas fees, and the currency people suffered from Ethereum for a long time. As a result, the DeFi exchange Serum created based on the high-performance public chain Solana, and the TRON-based DEX JustSwap succeeded in becoming a wealth hotspot.
The second weakness is simple function.
The core highlight of Uniswap is the automatic market maker (AMM) mechanism, which is an advantage, but it may also become a disadvantage.
The Uniswap function is too single and can only meet the most basic trading needs. The lack of real-time K-line charts can not meet the needs of many people to achieve expected returns by setting limit orders.
Based on this, Unitrade was born, an order book exchange based on Uniswap liquidity.
The third and most fatal weakness is lack of motivation.
Translating adult words without issuing coins, this is the key to Sushiswap’s ability to steal the fruits of victory.
There is only one incentive for liquidity providers in Uniswap, transaction fee rewards, which are not friendly to miners who provide liquidity. They take risks and support the successful operation of Uniswap, but they cannot follow Uniswap’s exponential Growth gains more revenue.
In addition, users who provide liquidity to the AMM pool will also cause impermanent losses-the difference in value between depositing tokens in AMM and just holding these tokens in the wallet. When the market price of tokens in AMM deviates in any direction, this temporary loss will occur.
So Sushiswap saw an opportunity.
Sushiswap directly reproduces the design of Uniswap, using the AMM (Automatic Market Maker) mechanism. The difference is that Sushiswap has introduced token incentives.
SUSHI follows the output of Ethereum blocks, and the total amount is unlimited. Each block in the first 100,000 blocks releases 1000 SUSHI, and each subsequent block releases 100 SUSHI.
In addition to its governance function, SUSHI also has the characteristics of a platform currency. The 0.25% commission is directly allocated to the live liquid miners, and the other 0.05% is used to repurchase SUSHI.
In this way, miners who provide liquidity can not only get the formalities, but also get token rewards.
Miners flocked to the top mine with a 10-fold increase in output.
Ingeniously, for the first 100,000 blocks, SUSHI is rewarded to miners who inject liquidity into 13 token pools such as USDC/ETH and SUSHI/ETH on Uniswap; after 100,000 blocks (about two weeks), Sushiswap then migrated the 13 token pools from Uniswap to Sushiswap. In theory, it can successfully achieve liquidity plunder.
Vampire attack
To sum up the rapid rise of Sushiswap, there are mainly the following factors:
- Increase token incentives so that miners who provide liquidity can get more benefits;
- SUSHI token nominally has the value characteristics of platform currency, dividends + repurchase;
- Extend the Uniswap mechanism to reduce the cognitive threshold of investors; low threshold and high compatibility.
In addition, the most important thing to ignore is that Sushiswap was initially compatible with the Uniswap token pool , and it nakedly attracted Uniswap users to participate in SUSHI mining, and then liquidity migration, which is equivalent to lying on Uniswap to suck blood while eroding competitors. Market share can kill two birds with one stone while increasing its reputation and transforming it into its own liquidity.
Cryptocurrency analyst Martin Krung believes that Sushiswap’s practice is a vampire attack .
To put it simply, the vampire attack of cryptocurrency is to transfer the liquidity of other projects to one’s own project, thereby taking away the liquidity of other platforms, increasing the value of one’s own platform, and achieving rapid rise.
Martin Krung summarized two vampire attacks of varying degrees:
A simple vampire attack, A has no governance tokens, only B issued $B.
- Copy project A’s open source smart contract and front-end system. At this time, Project A has not issued any tokens, but only collects a certain fee through transactions, and then gives back to the users who provide liquidity for platform A.
- Migrate liquid mining from project A to project B. Use the incentive mechanism to send the token $B of Project B to users who follow the migration.
- Project B starts governance and shares the benefits with users who hold $B.
- Finally, Project A gradually loses liquidity and thus loses platform revenue.
This is what SushiSwap is doing with Uniswap.
SushiSwap publicly called on Uniswap’s liquidity providers to transfer the LP tokens they received in Uniswap V2 to the fund pool of SushiSwap, thereby receiving SUSHI as a reward.
Under the instigation of interests, Uniswap’s liquidity providers will slowly transfer to SushiSwap, and then squeeze Uniswap’s liquidity.
In addition to this simple vampire attack, there are more complex vampire attacks.
A complex vampire attack, assuming that both A and B issue governance tokens, short $A and long $B
- Accumulate capital: sell $B to fill the project party’s fund library.
- Use half of the funds to lend as much $A as possible in the lending market.
- The remaining half buys $B and invests it in the lending market to achieve the purpose of long leverage (buy more $B).
- Migrate liquid mining from project A to project B. Like the simple version, $B is provided as a reward. At the same time, project B can start to sell $A to suppress its market price, or even use part of the funds to lend more $A in the lending market to sell, and at the same time, buy $B to increase the market price of $B.
- Encourage liquidity providers to migrate from platform A to platform B. When $A fell rapidly, platform A has gradually lost its liquidity.
- Buy back the low price of $A to repay it, and recover funds through the aforementioned leverage operations.
- Finally, $USD and $B are allocated to users who hold $B.
Repeat the above steps, use leverage to increase the impact on the market price of $A and $B, and complete the purpose of transferring users from project A to project B.
A vampire attack can be understood as a simple but honest “hacking attack”, which can be a big bully or a crime.
Liquidity involution and counterattack
Explain in a fashionable word of the moment, this may be called fluidity involution .
According to Martin Krung, the current liquidity mining protocols on DeFi may face vampire attacks, especially when SushiSwap proves that this method is effective, fork the project, parasitize the original project or migrate mining to grab liquidity It may become a new choice for many project parties. After all, “grab” is the fastest “road to wealth.”
For example, the recently popular Curve fork project Swerve.
According to DeBank data, Swerve’s lock-up volume has reached 418 million U.S. dollars in just three days after its launch, while Curve’s lock-up volume is 1 billion U.S. dollars, which has seen a slight decline in the past week.
In terms of model design, Swerve is not a fork in the full sense, but directly calls the transaction contract of curve. What Swerve does is equivalent to adding an agency model, and funds are stored on Swerve, which is also called a kind of Parasite and bloodsucking.
In the face of potential attack risks, Martin Krung urged that the project party should implement a certain method as soon as possible to lock in the liquidity of the platform, or reward users who can provide liquidity for a long time, so as to prevent other project parties from executing the attack mode of migrating mining. .
Today, the founder of SushiSwap has transferred control to the founder of FTX, SBF, and then SBF said on Twitter that SushiSwap will postpone the liquidity migration. Once it is sure that the migration code can work (may require code modification), it will start 48 hours Countdown.
Facts have proved that miners are only loyal to returns and profitability, not to the platform.
In the face of the menacing liquidity “robbing”, the Uniswap team can only swallow their anger for the time being, while speeding up the development process of V3. According to Twitter, when V3 comes out, tokens will be launched simultaneously to increase incentives, thereby allowing liquidity to flow back. It will be another liquidity battle.
Yenwen Feng, the founder of Perpetual Protocol, said on Twitter that if he were Hayden Adams (the founder of Uniswap), he would launch Uniswap V3 with tokens, and then start vampire attacks, just like SushiSwap once did with Uniswap.
In the DeFi world, the battle for liquidity will not stop. Crypto vampires lurking in the dark, reappearing in the world at any time.
Reference
1.Vampire Attack/Vampire Mining-an attack on liquidity dependent protocols, Martin Krung
2. “Understanding the SushiSwap vampire attack: the approval is similar to the subprime mortgage crisis CDO, how does it squeeze Uniswap liquidity” Blocktempo
Source link: mp.weixin.qq.com
