Last updated on July 11th, 2023 at 11:55 pm
Introduction
SushiSwap, a popular decentralized exchange (DEX) built on the Ethereum blockchain was launched in August 2020. The story of its launch is quite controversial, and the event is seen as one of the most polarizing incidents to ever take place in the DeFi ecosystem.
In this article, we will explain what a vampire attack is with the help of the story behind how SushiSwap came into existence.
Let’s dive in!
What Is A Vampire Attack?
A Vampire Attack takes place when Liquidity Providers (LPs) of one platform are incentivized with better rates and other benefits to stake their LP tokens to a new platform. These LP tokens represent the supplied liquidity to a liquidity pool and the transfer of these tokens from one platform to another would essentially take away all the liquidity from that platform to the new one.
To kick off a vampire attack, the attacker first needs to attract liquidity. This is commonly done by giving LPs more benefits than what the original platform has to offer. After the platform has attracted sufficient liquidity, all the staked LP tokens are migrated to the new platform. This not only allows the new platform to add liquidity but also enables it to imbibe the trading volume and the users of the original platform.
If a vampire attack is successful, the new protocol can capture a significant amount of the original protocol’s liquidity, users, and trading volume.
The Infamous SushiSwap Incident 🍣 vs Uniswap🦄
Sushiswap, led by a pseudonymous creator, Chef Nomi, along with other developers forked Uniswap’ss open-source code. In an attempt to attract LPs straight after the launch, they added the incentive of receiving a governance token name SUSHI in addition to the transaction fees that they already received. Holding this token gave the users a right to contribute to decision-making on the platform.
Let’s take a look at how the SushiSwap launch played out.
Led by Chef Nomi, SushiSwap attracted a lot of attention straight after its launch. This is because the platform offered high APYs to LPs in the range of +200% to +1000%. As a result, just a few hours after the launch, the protocol had around $150M in total value locked in.
Chef Nomi recognized that SushiSwap’s success was dependent on liquidity. To attract LPs, he offered the following benefits:
- SUSHI Tokens – LPs were incentivized to stake their tokens on the platform through rewards paid out in SUSHI tokens. Moreover, the platform followed an aggressive emission schedule for its token in order to attract different DeFi communities. As per the schedule, liquidity providers received 1000 SUSHI tokens per Ethereum block distributed across different pools such as LINK-ETH, SNX-ETH, YFI-ETH.
- % of Fee Revenue – By staking SUSHI tokens, LPs became eligible to earn a portion of the platform’s total fee revenue. This meant that they could now earn more revenue by providing liquidity to SushiSwap as opposed to Uniswap.
The team behind SushiSwap created a MasterChef contract which was designed to migrate all the LP tokens from Uniswap to Sushiswap once it was triggered. Once Uniswap’s liquidity had been migrated to Sushiswap, it instantly became available for trading on the platform.
SushiSwap went all out in offering incentives to LPs so much so that even to motivate them to participate in the migration, they were given incentives. Some of which included:
- The liquidity mining program would continue with a lowered emission rate at 100 SUSHI per block instead of 1000 even after migration.
- Users who staked their SUSHI tokens would get a proportion of the trading fees from SushiSwap.
Here’s how the events played out in chronological order:
- On August 26, 2020, SushiSwap was announced as an ‘evolution of Uniswap’ with ‘community-oriented features’ in the form of the SUSHI token.
- A few hours into the launch, the platform reached approximately $150M in Total Value Locked (TVL), an important measure of the popularity, depth, and liquidity of a DEX platform.
- On September 1, 2020, SushiSwap was listed on Binance. This pumped SUSHI token’s price is as high as $15.
- Few days after the listing, SushiSwap’s TVL reached close to $1B.
- Multiple security audits were conducted on the platform and no critical issues were found.
- On September 4, 2020, the CEO of FTX and Almeda Research, Sam Bankman-Fried (aka SBF) who was one of the biggest holders of SUSHI came out with a proposal to migrate part of SushiSwap to Serum, a trading platform, in the future.
- In an attempt to incentivize LPs even further, the community voted for an early migration from Uniswap to SushiSwap.
- Possibly the most unexpected event of this saga, on September 5, 2020, Chef Nomi, one of the founders of SushiSwap sold his entire stake in SUSHI for ETH. The stake was worth around $14M. We will look at this event in more detail later in the article.
- Chef Nomi tried to justify his actions to the community as something good for the project. But, the community had lost all its trust in Chef Nomi, and later, he decided to leave the project.
- Chef Nomi essentially transferred the control of the platform to SBF who took charge and provided even more incentives to LPs to stay for the migration. He added an extra 2 million SUSHI tokens to be distributed as incentives.
- SBF carried out the migration of liquidity to the platform on September 9, 2020. At the time of migration, the platform had around $840M in liquidity, coming down from its peak of $1.2B in TVL.
- All the liquidity was successfully transferred to SushiSwap and trading of tokens started on the platform.
Wait, did you think this was the end of unexpected events? Not even close. Time for the biggest plot twist. On August 11, 2020, 2 days after the successful migration, Chef Nomi returned $14M worth of ETH to Sushiswap’s development fund. He later went on to apologize to the community in an emotional Twitter post.
“Chef Nomi…later went on to apologize to the community in an emotional Twitter post”
Chef Nomi
With the launch of SushiSwap, Chef Nomi has become one of the most popular names in the world of DeFi. He managed to successfully spearhead an operation that saw SushiSwap go head-to-head with the DeFi’s biggest DEX in Uniswap.
While he had essentially only copied Uniswap completely, the move was seen to be “fair” in the DeFi space as everything is open-source.
However, it didn’t take long for him to lose all his credibility among the DeFi degens with his move to essentially steal $14M in ETH from the DeFi community.
Initially, Chef Nomi had exclaimed to the community “I don’t sell any token”. But, in a move that shocked the DeFi community, he traded all the SUSHI tokens in the platform’s dev fund worth $14M for ETH. What was even bizarre was that he used Uniswap to make the trade. Funny how things work out, right?
In the world of DeFi and blockchain, nothing can be kept a secret. When the community realized what had happened, the price of SUSHI tanked by more than 70%. In an outrageous Twitter post, Chef Nomi tried to explain that he did so because “he cares” about the community.
However, all’s well that ends well as, in the end, Nomi returned the $14M to the dev fund of SushiSwap, and the protocol lead by SBF continued to offer extravagant incentives to LPs.
What Did This Mean For Uniswap?
Uniswap experienced great volatility leading up to the migration. The TVL on the protocol went down to $400M from $1.8B and liquidity was continuously being moved from Uniswap to SushiSwap.
One would think that such an event would have meant the end for Uniswap but something quite the opposite happened in reality. The event attracted a lot of attention to the DeFi space and brought tremendous value to the ecosystem.
After going down to $400M, Uniswap’s TVL rebounded and grew as high as $3B within the next two months. Moreover, learning from the experience, Uniswap went on to release its own governance token, UNI, in order to incentivize and reward the community.
Conclusion
The events that took place were quite extraordinary, to say the least. The vampire attack on Uniswap changed the DeFi landscape forever. It sent out a clear message to all the existing platforms that if they did not meet the communities’ expectations, they risked being forked.
Although SushiSwap’s launch was full of drama, the protocol has gone on to become one of the most reliable DEXes in DeFi and currently has over $3.3B in TVL.
So, what are your views on vampire attacks? Do you think what happened with Uniswap was right, or fair?
Comment down below and let us know your opinion.
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