The recent developments in the DeFi space have resulted in AMMs (automated market makers) becoming increasingly popular on decentralized exchanges (DEXs). Liquidity is a key component of DeFi applications, specially DEXs. They need constant supply and demand to stay liquid, and without trading activity, they will fail. Traditional order book-based models were incapable of enforcing liquidity consistency when decentralized participants were involved in DEX protocols. As a result of AMMs, those who use smart contracts (code deployed on the blockchain) do not have to be concerned about the liquidity requirements of a DEX. It’s important to cover some ground before diving into the details of vampire attacks on AMMs and the effects they have on these platforms. DEXs and AMMS: Using a DEX, users can trade crypto tokens with each other without the need for a third-party intermediary. Customers do not have to submit any personal information to use the platform, making it possible for them to trade anonymously. But since all transactions are recorded on the blockchain, DEXs are not completely anonymous. DEXs can be classified into two main categories: DEXs Based on Order Books: A DEX based on an order book enables users to buy and sell orders at their desired prices, while orders are recorded in a central ledger and users retain ownership of their assets. Liquidity Pools Bases DEXs: Most of these DEXs rely on automated market makers (A...
