Uniswap launches L2 chain Unichain Interpretation of the trinity behind Unichain

Author: 100y, crypto researcher; Compiler: 0xjs@黄金财经

Unichain unveiled. Breaking news in the crypto industry: Leading AMM DEX Uniswap has officially announced its own L2 solution Unichain on October 10.

A few years ago, I speculated that Uniswap might develop its own network and was opposed due to potential user experience challenges. However, with the unveiling of Unichain, my prediction was proven wrong.

To put it bluntly, Unichain's white paper is only three pages, but a closer look will reveal that it is a masterpiece. It brings together Uniswap's long-standing focus on UX, Flashbots' latest MEV research, and the vast ecosystem built by OP-Stack. Although brief, the white paper touches on complex topics such as TEE, prioritization, and MEV tax, which may be challenging for readers who are not familiar with the basics of MEV. Therefore, this article aims to quickly and simply break down the main features of Unichain for easy understanding.

1. Problems

Uniswap is the leading AMM DEX in the Ethereum ecosystem, currently deployed on 25 networks with a total TVL of approximately $4.5 billion. Although Uniswap is already one of the most successful protocols, it still faces limitations of the network on which it operates.

For example, the Ethereum network provides huge liquidity, but has low scalability and is vulnerable to malicious MEV (maximum extractable value) attacks. To address these issues, various rollup solutions have emerged, but most are currently operated by a single sorter, resulting in potential single points of failure such as active failures and censorship.

In addition, the block construction process on Ethereum and most Rollup networks involves a public memory pool, creating an environment where users (searchers) extract MEV (for good or bad) from other users. In addition, due to the structure of the MEV value chain, there is an imbalance in which value is disproportionately captured by proposers rather than benefiting users.

2. Enter Unichain

2.1 Overview

Unichain is an Ethereum optimistic rollup based on OP Stack, launched by Uniswap, Flashbots, OP Labs and Paradigm, to solve the above problems. Unichain offers several key advantages through 1) Verifiable Block Construction and 2) the Unichain Verification Network:

• Fast state updates

• Enabling applications to extract and internalize MEV

• Fast settlement through fast economic finality

In addition to being an OP Stack-based Rollup, Unichain also plans to participate in the Superchain ecosystem. In addition to its native fast settlement capabilities, this integration is expected to provide users with a seamless liquidity experience through cross-chain solutions within the Superchain ecosystem.

Now, let’s take a closer look at how Unichain implements these features.

2.2 Verifiable Block Construction

Verifiable block construction is achieved through Rollup-Boost, which was developed in partnership with Flashbots. Rollup-Boost provides two key features: Flashblocks and verifiable prioritization. Similar to MEV-Boost, Rollup-Boost acts as a sidecar software.

2.2.1 Flashblocks

Flashblocks is a type of pre-confirmation issued by TEE builders (we will explore it in detail below). Unichain generates partial blocks, splitting a single block into four parts, creating partial blocks every 250 milliseconds and sending them to the sorter.

The sorter continuously downloads these partial blocks while executing transactions, providing users with early execution confirmations. The sorter guarantees that these partial blocks will be included in the final proposed block. This process can speed up state updates, reduce latency, improve user experience, and mitigate malicious MEVs.

2.2.2 Verifiable Prioritization

2.2.2.1 Prioritization

Priority sorting is a block construction mechanism proposed by Dan Robinson and Dave White of Paradigm. It assumes that block proposers sort transactions based solely on priority fees and do not censor or delay operations. This model is only feasible when there is a single or trusted block proposer. In a competitive environment such as Ethereum L1, where multiple proposers build blocks, priority sorting is not feasible.

The purpose of a privacy order is to allow dApps on the mainnet to extract some of the MEV value by imposing a MEV tax on transactions that interact with them. This value can be used internally by the dApp or redistributed to users. The MEV tax is a fee imposed by the smart contract on transactions, which can be set based on the priority fee of the transaction. Let's look at an example.

The 100y DEX on Unichain L2 wants to extract MEV value directly from the MEV transactions that occur on its exchanges. Since it knows that blocks on Unichain are built using priority ordering, this means that the MEV value of any transaction is entirely determined by its priority fee. The MEV tax set by 100y DEX is equal to 99 times the priority fee of the transaction.

If an arbitrage opportunity worth 100 ETH appears, what is the maximum priority fee that a searcher is willing to pay to acquire it? The answer is 1 ETH. Setting the priority fee to 1 ETH results in a MEV tax of 99 ETH, for a total of 100 ETH. If the searcher sets a priority fee higher than 1 ETH, the total cost will exceed 100 ETH, resulting in a loss. Therefore, 100y DEX can capture at most 99 ETH of the 100 ETH MEV value.

For ordinary users who do not extract MEV value, the priority fee will be set much lower, which means that 100y DEX will not extract value from these transactions. Instead, it will only extract the MEV value represented by the priority fee. This setting allows applications to extract MEV directly, opening up a variety of potential use cases.

2.2.2.2 Verifiable? Use TEE!

The key here is to ensure that the entity responsible for block construction uses the priority sorting mechanism. To achieve this, Unichain implements two measures: 1) it separates the sorter and block builder, similar to the PBS model; 2) it forces block builders to use TEE (Trusted Execution Environment) to allow anyone to verify that the priority sorting mechanism is being used.

A Trusted Execution Environment (TEE) is a secure section within the hardware (e.g., CPU) that runs independently from the rest of the system to securely process sensitive data. The TEE ensures that trusted code can run securely even if the external environment is compromised. Prominent examples include ARM's TrustZone and Intel's SGX. A common example is how biometric data (e.g., fingerprint or facial recognition) is processed on a mobile device in a TEE.

This design can prevent even the operating system or programs with administrator privileges from accessing the secure area. To ensure that the code running in the TEE is trusted, we use an attestation process. This verification ensures that the TEE remains secure and has not been tampered with. For example, in Intel SGX, a hash value is generated to represent the code and data in SGX, and hardware-managed private keys prove the integrity of the code.

Unichain's block construction process takes place in the trusted execution environment (TEE) of the TEE builders. Thanks to the characteristics of TEE, these builders can first submit a proof to prove to users that they are using a prioritized block construction mechanism. These features combined ensure that applications on Unichain can reliably extract part of the MEV revenue.

2.3 Unichain Verification Network

The Unichain Verification Network is a decentralized network of node operators responsible for verifying the latest state of Unichain and providing fast finality, enabling seamless cross-chain transactions through economic security. This concept is similar to AltLayer's MACH, which uses EigenLayer for fast finality, as well as Nuffle's fast finality layer and the latest fast finality concept proposed by Symbiotic.

To become a decentralized node in Unichain, participants must stake UNI on the Ethereum mainnet. Each period, the node with the highest staked UNI balance will be selected into the active set and participate in verification by running the Reth Unichain client. Additionally, similar to other networks, UNI holders can choose to delegate their stake.

3. Final Thoughts

Uniswap has achieved strong product-market fit as a dApp, and I am very bullish on its transition to an application-specific L2 based on Ethereum, especially as it seeks to expand its ecosystem. However, as liquidity fragmentation remains a challenge, it will be key to see how the Uniswap team can provide a seamless cross-chain trading experience between Ethereum L1 and Unichain L2.

From an investment perspective, it is particularly interesting that the UNI token will now be used as a staking token for UVN. Given the strong performance of staking protocols such as EigenLayer, Symbiotic, and Karak, we can expect a large amount of UNI to be staked in UVN, which will greatly promote the value growth of UNI.

Following the announcement on October 10, UNI has risen by about 12% and has entered the top 20 by market cap. Given UNI’s already high market cap compared to other tokens, it will be interesting to observe the impact of UNI staking on its future price.