Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom), published with permission.
Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom)Chain News ChainNews (ID: chainnewscom)
, published with permission.
What about the blood-sucking Uniswap?
Compiler: Perry Wang
"The article discusses that Uniswap may respond by issuing tokens and improving the product V3 version. Consistent with our expectations, Uniswap’s governance token UNI has become a means of combating forks and was officially launched today.
It’s time to think about these questions: Are forks destined to be zero-sum games? How should DeFi projects defend against vampire attacks and fast-track forks? Let’s analyze different bifurcation situations and coping strategies through the four quadrants.
By: Ian Lee, Managing Director, IDEO CoLab Ventures
I have recently discussed with many project founders and investors the potential impact of DeFi forks and how to design protocols that prevent forks (or embrace forks). More teams are preparing to launch fast-following forks in the coming days, while existing projects that have not yet issued tokens are in discussions with investors to restructure their token caps to make them more "fair" (and thus more resistant to splits). Fork sex or at least keep that hope)_.
The impending battle of the DeFi protocols marks a new era for cryptocurrencies where competitive positioning and strategy are as important as composability and collaboration.
As a former consultant who focused on competitive strategy, I found this pattern interesting, familiar and fascinating.
But more than fun on paper, competitive strategy is now critical for cryptocurrency projects and founders looking to build a valuable, defensible, and durable presence in the crypto space.
first level title
Forks are not uniform
The first thing you need to realize is that not all forks are created equal. Everyone has different desired outcomes, approaches, and strategies. Since SushiSwap's "vampire attack" on Uniswap two weeks ago, we have now seen a variety of fork types, some of which are expected, while others currently appear to be completely new.
Fast-following forks in DeFi generally have these patterns:
Drive-up fork: The main purpose of this kind of fork is to cheat a lot of people's money, let a few people make a lot of money, and then choose to attack the next target. There have been many examples of this recently, notably the fork of YFI, the fork of SushiSwap_(SushiSwap itself is a fork of Uniswap)_ and the fork of YAM.
Fast-follower forks: These are forks that try to invalidate the original protocol or do something better — modify token distribution, incentive design, or key functionality. In this category of forks 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 fork: This kind of fork brings the protocol, interface, brand and publicity to a specific geographical location, region, customer group or subdivision fork. These forks attempt to capitalize on greater knowledge and intimacy with certain customer segments. For example, YFII_(YFI)_ provides translations in Chinese, Japanese, Korean and Thai to connect with users in these markets.
Large Protocol Fork: A fork from a well-established existing protocol to enhance its functionality and/or product offering for existing users. We don't see these happening just yet -- but they're coming.
New emerging fork types:
Governance fork: 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.).
Cross-chain fork: Take an existing Ethereum-based DeFi protocol and bring it to a new blockchain or cross-chain fork. I bet we will see a lot of this on Layer 1 public chains like NEAR, Polkadot, Cosmos, Tezos, and Tron. Some of these may have been created by Layer 1 teams themselves to bootstrap their own DeFi ecosystems.
New Application Fork: This type of 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, teams can better defend against forks that pose the greatest risk to their protocol. For example, some forks target the same user base and introduce similar products/protocols, while others target new user bases with new products/protocols.
Unsurprisingly, different types of forks will have different competitive dynamics and ways to defend against them. A one-size-fits-all approach to fork resistance will not work. Protocols may require the development of multiple strategies.
Accept the fact that it will definitely be forked
Whether we like it or not, we have to accept _(by increasingly savvy and advanced teams)_ that endless forks are inevitable - a shadow of the benefits that accompany open source software.
So, assuming that forks of all types of protocols are going to happen in the future, what can DeFi founders do to make their protocols more defensive and resilient to future forks?
Can the protocol be designed so that the fork changes from a zero-sum game to a positive-sum game, so that the fork and the original agreement can achieve a win-win situation?
secondary title
Rapid Fork: Deepen the moat and continue to innovate
"Fast forks" are the most common type of fork today, in part because they are relatively easy to execute. However, the defense strategy for fast forks is not well understood. Many examples such as SushiSwap and Swerve have proved that liquidity alone cannot form a moat-liquidity providers LP will ruthlessly switch from one protocol to another in order to maximize profits.
To resist the "rapid forks" of new teams and existing teams_(such as large agreements)_, DeFi agreements should not only deepen their moats in ways other than liquidity, but also organize their own continuous innovation to get rid of the current and future compete.
Strong Economic Defense
Minimize the number of tokens allocated by VC, and maximize the amount of tokens allocated by users according to the design of token allocation, so as to resist fair start forks and provide greater flexibility. Design liquidity retention/growth incentives into the protocol and potentially consider liquidity migration incentives or remigration incentives to prevent or attack future forks. Simon de la Rouviere, who proposed bonding curves in 2018, outlines some designs.
User Experience UX
Design and deliver the best possible user experience—not just for your protocol, but for other protocols it integrates with. If you can provide the best experience, you will win and keep users. Build user experiences that forks cannot provide_ (e.g. token-access chatrooms via Collab.Land) and design the best overall experience for community members - from the core interface, communications and forums, to governance tools and Experience (for example, through platforms such as Boardroom)_.
Unforkable encrypted social network
Your protocol should focus on acquiring and locking in the highest quality, highest lifetime value (LTV)_users. They may be key opinion leaders KOL in the cryptocurrency field (for example, cryptocurrency founders, cryptocurrency investors), trusted institutions (for example, OTC trading institutions, exchanges, etc.) or specific DeFi communities. Birds and beasts will disperse due to the emergence of high-yield forks. Via leaderboards, portable pseudonymous reputation engines (e.g. 3Box), or new social experiences (e.g. token-licensed chatrooms)_, this on-chain network and profiles are revealed so that ordinary users can actually see and feel to the striking community owned by your protocol.
Real World Adoption and Integration
Get your protocol adopted and integrated by non-encrypted businesses and systems. The team doing the fork won't do this kind of hard work because it's too time-consuming and labor-intensive. Hook up a reputable, trusted institution, make it a user of your protocol, and let the world know about it. This will become even more important as new institutional and retail businesses enter the DeFi space.
DeFi composability and integration
Resources for Continuous Innovation
Make sure your protocol gets enough funding _ (e.g., treasury, foundation, VC)_ to enable faster innovation in future forks. "Innovate or die," as they say. So don't give your network 100% to short-term yield farmers, whether through some VC capital or leverage reverse funds in the case of a fair launch, because they can't help the protocol remain competitive in the long-term.
Credible brand, team and contracts
Build a durable brand that is globally recognized, respected and trusted. Under strong leadership, develop a highly cohesive team that communicates consistently and acts with principle. Plan responses for all what-if scenarios. Let the smart contracts in your agreement be audited, and the promotion is not just "audited by XYZ". Details what was audited and the tests that were run. Publicly release part of the audit report.
secondary title
Meta Forks: Fast Follow and Collaboration
Meta forks are interesting because it's often not clear whether they want to support or attack the original underlying protocol - an unauthorized team modifying some form of governance or interface/user experience UI/UX. In these cases, the best thing to do is to reach out to that team, assume it's good intentions, and develop a collaborative working relationship with it.
Learn from forks
Use your existing brand and user base to quickly follow the meta fork, and follow the "quick fork" playbook. Copy the fork's new products and features and add it to your existing experience or as a separate project. Worried about meta governance tokens? Create another one based on it. Worried about your interface being forked again? Follow along quickly and add its functionality to yours quickly. Let the forked team do research and development, and then you learn from it to make your product/protocol better.
DeFi joins forces for co-creation partnerships
Partnering with other DeFi protocols not only enables fast following, but co-creates new features, integrations, and experiences across multiple DeFi protocols that cannot be provided by current meta-forks. By joining forces, you can accomplish more together than you or a forked team could do alone, while attracting and retaining users in the process.
secondary title
Forking in New Markets: Incentives and Consolidation
Forks that bring your protocol to new markets and user bases can be ignored or accepted.
Finding ways to incentivize and eventually integrate same-origin or cross-chain forks into your current protocol in a way that is beneficial to both parties and beneficial to your protocol is, in my opinion, a much more powerful and interesting path.
Integrate forked coins
Design mechanisms into the protocol to use forked tokens, thereby incentivizing and bringing forked liquidity into your own protocol network. For example, combining a forked token with a protocol’s native token can use token bonding curves to create entirely new or rarer assets.
Staking and Bootstrap Forks
Design mechanisms that incentivize the use of your protocol's native token to help stake and bootstrap new forks, so that forks can benefit from your liquidity and grow_ (and in the process, increase the use of your protocol's native token)_. Further incentivize that fork to integrate with your native protocol, enabling the fork to access and benefit from your protocol's user network, tools, experiences, etc.
Fork Integration Rewards
shared infrastructure
Create the infrastructure your protocol uses and make it available to forks_(perhaps in return for integration)_, such as shared on-ramps, wallets, user profiles, social graphs, databases and documentation, etc.
Forked Ecosystem Fund
DAOs provision tokens through treasuries, foundations, or community-managed decentralized organizations to support the creation, growth, and integration of forks into the protocol.
New Application Forks: Investment and Integration
Forks that use your protocol or native elements to find new applications and users should invest in and integrate them where appropriate.
To that end, your protocol may need to establish an ecosystem or community development fund to make such investments. For example, the current practice of many DeFi founders is to provide them with angel investment.
However, such practices could be made more structured by setting up agreements equivalent to corporate venture capital arms. Investing in new applications will also help your protocol discover new markets, products, services, and protocols outside of your core domain, which could lead to new and significant growth opportunities.
