LP Token Migration

In 2020, SushiSwap executed a liquidity migration from Uniswap, a classic example of a "vampire attack." The protocol incentivized users to migrate their Uniswap v2 LP tokens to SushiSwap by offering SUSHI governance tokens as a reward. The process was facilitated by a migration contract that:

• Accepted users' Uniswap LP tokens.
• Withdrew the underlying liquidity from Uniswap.
• Deposited it into an identical SushiSwap pool.
• Issued new SushiSwap LP tokens and distributed SUSHI rewards to the migrator.

Curve Finance migrations often involve moving gauge weight and CRV emissions rather than the underlying LP tokens themselves. When a new, optimized pool version is launched (e.g., a metapool), LPs may migrate to capture higher yield. The process typically involves:

• Depositing old LP tokens into a migration zap contract that swaps them for the new LP tokens.
• The new LP tokens must then be staked in a gauge to earn CRV rewards and voting power.
• This ensures liquidity and vote-locking incentives are seamlessly transferred to the upgraded pool.

Following a security exploit, protocols may need to migrate to new, audited contracts. After Cream Finance's October 2021 hack, the team created a migration plan for affected liquidity providers. This involved:

• Snapshotting LP token balances from the old, compromised contracts at a specific block.
• Deploying new, secure vault contracts.
• Allowing users to burn their old, worthless LP tokens to mint new ones in the secure system, restoring their claim on the protocol's remaining treasury assets.

To simplify complex migrations, protocols deploy zap contracts that bundle multiple transactions. For example, migrating between different Automated Market Maker (AMM) types or wrapping LP tokens might require several steps. A zap automates this by:

• Accepting the old LP token.
• Programmatically withdrawing, swapping, and re-depositing assets into the new pool in a single transaction.
• Minimizing slippage, gas costs, and user error. Yearn Finance and other yield aggregators frequently use zaps for vault migration strategies.

As multi-chain DeFi expands, LP migration can occur across blockchains. Moving liquidity from Ethereum to an EVM-compatible chain like Arbitrum or Polygon involves:

• Using a cross-chain bridge or canonical bridge to transfer the underlying tokens.
• Burning the LP tokens on the source chain.
• Minting new LP tokens on the destination chain after providing liquidity in a new pool.
• Protocols like Hop Protocol or Stargate facilitate this by offering cross-chain LP tokens that represent bridged liquidity.

The new migration contract is a primary attack surface. Risks include:

• Reentrancy attacks where malicious code drains funds during the transfer.
• Logic flaws in the migration function that could mint incorrect token amounts or lock funds.
• Upgradeability risks if the contract uses proxy patterns, where admin keys could be compromised to alter behavior post-migration. Always require audits from multiple reputable firms and a formal verification of critical state changes.

Migration is often initiated via a governance vote, creating several risks:

• Vote manipulation through token borrowing or flash loans to pass a malicious proposal.
• Tyranny of the majority where a large holder forces a migration that harms smaller LPs.
• Admin key risk if the migration is executed by a multi-sig; a compromised signer could redirect funds. Transparent governance forums and time-locked execution are essential mitigations.

End-users are vulnerable during the migration process:

• Phishing websites impersonate the legitimate migration portal to steal approval signatures and private keys.
• Approval risks: Users must grant high or infinite token approvals to the new contract, which could be exploited if the contract is malicious.
• Transaction front-running: Bots can exploit public migration transactions, though this is mitigated by using commit-reveal schemes or direct contract interactions.

Migration can destabilize the underlying asset's economics:

• Temporary liquidity gaps occur as funds move, creating arbitrage opportunities and price slippage.
• Oracle manipulation during the migration window can affect price feeds for the old and new pools.
• Denial-of-Service (DoS) attacks on the migration transaction via high gas prices can prevent users from migrating, leaving them in an deprecated, illiquid pool. Staggered migrations and liquidity incentives can reduce these impacts.

A secure migration must include safety mechanisms:

• Timelock on execution: All critical functions (e.g., setting new contract addresses) should have a mandatory delay (e.g., 48-72 hours) allowing users to review and exit.
• Emergency pause function: A guarded ability to halt migration if bugs are discovered.
• Clear migration window: A defined period for users to move funds, after which the old contract should have a secure shutdown procedure to prevent funds from being stranded in an unsupported system.

Users must verify every aspect of the migration:

• Contract verification: Ensure the new contract's source code is publicly verified on the block explorer and matches the audited version.
• Token address verification: Double-check that the new LP token contract address is correct and immutable.
• On-chain governance verification: Confirm the migration proposal passed legitimately by checking the governance contract directly, not relying on third-party sites. Trust should be minimized; verify all data on-chain.

A smart contract that holds reserves of two or more tokens, enabling decentralized trading, lending, and other financial services. Users who deposit assets into a pool receive LP tokens as a receipt representing their share of the total liquidity.

• Purpose: Provides the foundational liquidity for Automated Market Makers (AMMs) like Uniswap and Curve.
• Mechanism: Trades are executed against the pool's reserves, with prices determined by a constant function (e.g., x*y=k).

A decentralized exchange (DEX) protocol that uses algorithmic pricing and liquidity pools to facilitate asset swaps without traditional order books.

• Core Function: Allows users to trade tokens directly against a pool's reserves.
• Relation to Migration: LP Token Migration often occurs when users move liquidity from one AMM (e.g., Uniswap V2) to an upgraded version (e.g., Uniswap V3) to access new features like concentrated liquidity.

The opportunity cost experienced by liquidity providers when the price ratio of their deposited assets changes compared to simply holding them. It is 'impermanent' because the loss is only realized upon withdrawal from the pool.

• Migration Impact: A key reason for migration is to move to pools with features (like concentrated liquidity) designed to mitigate this risk.
• Calculation: Loss occurs when the volatile asset in the pair outperforms the other.

The practice of staking or locking LP tokens in a protocol to earn additional token rewards, typically as an incentive to provide liquidity.

• Incentive Mechanism: Protocols distribute their native tokens to attract capital.
• Migration Driver: Users often migrate LP tokens to new pools offering higher or more sustainable Annual Percentage Yield (APY).

A protocol that enables the transfer of tokens and data between different blockchain networks (e.g., Ethereum to Arbitrum).

• Cross-Chain Liquidity: Essential for migrating LP tokens across layers (L2s) or separate chains to access better fees or incentives.
• Process: Often involves locking tokens on one chain and minting a representative wrapped asset on the destination chain.

A helper smart contract that optimizes complex DeFi transactions, such as finding the best exchange rate across multiple pools or executing multi-step swaps and deposits in a single transaction.

• Migration Utility: Often used in migration interfaces to atomically withdraw liquidity from an old pool and deposit it into a new one, minimizing slippage and exposure.
• Example: Uniswap's Router contract handles swaps and liquidity additions.