What Doesn't Kill You Makes You Stronger? Evidence from Vampire Attack on Decentralized Exchange

Our study examines the impact of vampire attack, a unique platform entry strategy in the blockchain ecosystem. The cryptocurrency market has grown dramatically over the past decades since the emergence of Bitcoin protocol in 2008. Decentralized exchanges (DEXs), allowing blockchain users to directly buy and sell cryptos on the chain, started to blossom recently with trading volume reaching 80% on-chain market share at its peak. As the DEX becomes immensely popular, so does the vampire attack, where the entrant attacker completely clones the incumbent's platform and “sucks” its liquidity by providing tokenized rewards. We implement a quasi-experimental design to uncover the deposit-side and exchange-side impact of the first and most famous vampire attack launched by Sushiswap (attacker) against Uniswap (incumbent). Surprisingly, the vampire attack leads to no significant downturn on the deposit-side, and even promotes the exchange-side performance. We plan to further uncover the underlying reasons that contribute to these intriguing results.