Unichain combines the achievements of Uniswap, Flashbots, and OP Stack.
Author: 100y
Compiled by: Luffy, Foresight News
A few years ago, I had speculated that Uniswap might develop its own network and was opposed to it due to potential user experience challenges. However, with the unveiling of Unichain, my prediction has been proven wrong.
The Unichain whitepaper is only three pages long, but a closer look reveals it to be a masterpiece. It brings together Uniswap's long-standing focus on UX, Flashbots' latest MEV research, and the expansive ecosystem built by OP Stack. Although the content is concise, the whitepaper covers complex topics such as TEE (Trusted Execution Environment), priority ordering, and MEV taxes, which may be challenging for readers unfamiliar with the basic concepts of MEV. Therefore, this article aims to introduce the main features of Unichain in a quick and simple manner.
1. The Problem
Uniswap is the leading AMM DEX in the Ethereum ecosystem, currently deployed on 25 networks with a total TVL of around $4.5 billion. Although Uniswap is already one of the most successful protocols, it still faces some limitations from the underlying network.
For example, the Ethereum network provides vast liquidity but has relatively low scalability and is susceptible to malicious MEV (Maximum Extractable Value) attacks. To address these issues, various Rollup solutions have emerged, but most Rollups today rely on a single sequencer for transaction ordering, leading to potential single points of failure, such as liveness failures and censorship.
Furthermore, the block construction process on Ethereum and most Rollup networks involves a public mempool, creating an environment where users (searchers) can extract MEV from other users. Additionally, the structure of the MEV value chain creates an imbalance where value is disproportionately captured by proposers rather than benefiting users.
2. Unichain
2.1 Overview
Unichain is an Ethereum Optimistic Rollup based on the OP Stack, launched by Uniswap, Flashbots, OP Labs, and Paradigm, aimed at solving the aforementioned problems. Unichain provides several key advantages through 1) verifiable block building and 2) the Unichain Verification Network:
- Rapid state updates
- Applications can extract and internalize MEV
- Fast settlement through rapid finality
In addition to being an OP Stack-based Rollup, Unichain also plans to participate in the Superchain ecosystem. Beyond 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.
Let's take a closer look at how Unichain achieves these functionalities.
2.2 Verifiable Block Building
Verifiable block building is achieved through Rollup-Boost, a feature developed in collaboration with Flashbots. Rollup-Boost provides two key functionalities: Flashblocks and verifiable priority ordering.
2.2.1 Flashblocks
Flashblocks is a pre-confirmation mechanism (which we'll discuss in more detail later) published by TEE builders. Unichain generates partial Blocks, dividing a single Block into four parts, creating a partial Block every 250 milliseconds and sending it to the sequencer.
The sequencer, while executing transactions, continuously downloads these partial Blocks, providing early execution confirmation to users. The sequencer guarantees to include these partial Blocks in the final proposed Block. This process can accelerate state updates, reduce latency, improve the user experience, and mitigate malicious MEV.
2.2.2 Verifiable Priority Ordering
2.2.2.1 Priority Ordering
Priority ordering is a block building mechanism proposed by Paradigm's Dan Robinson and Dave White. It assumes that block proposers only order transactions based on priority fees and do not perform censorship or delay operations. This model is only feasible in the presence of a single or trusted block proposer. In a competitive environment like Ethereum L1, where multiple proposers construct Blocks, priority ordering is not viable.
The purpose of private orders is to allow mainnet DApps to levy an MEV tax on the transactions they interact with, thereby extracting a portion of the MEV value. This value can be used internally by the DApp or redistributed to users. The MEV tax is a fee charged 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 directly extract the MEV value from the MEV transactions occurring on its exchange. Since it knows that Blocks on Unichain are constructed using priority ordering, this means that the MEV value of any transaction is entirely determined by its priority fee. The 100y DEX sets the MEV tax to be 99 times the priority fee of the transaction.
If there is an arbitrage opportunity worth 100 ETH, how much priority fee would a searcher be willing to pay at most to capture it? The answer is 1 ETH. Setting the priority fee to 1 ETH will result in an MEV tax of 99 ETH, for a total cost of 100 ETH. If the searcher sets the priority fee higher than 1 ETH, the total cost will exceed 100 ETH, resulting in a loss. Therefore, the 100y DEX can capture up to 99 ETH out of the 100 ETH MEV value.
For regular users who do not seek to capture MEV value, the priority fee will be set much lower, meaning the 100y DEX will not extract value from these transactions. Instead, it will only capture the MEV value represented by the priority fee. This setup allows applications to directly extract MEV, creating various new potential use cases.
2.2.2.2 Verifiable? Using TEE
The key here is to ensure that the entity responsible for Block building uses the priority ordering mechanism. To achieve this, Unichain has implemented two measures: 1) It separates the sequencer and Block builders, similar to the PBS model; 2) It mandates that Block builders use a TEE (Trusted Execution Environment) to allow anyone to verify that the priority ordering mechanism is being used.
A TEE is a secure part of the hardware (e.g., CPU) that runs independently of the rest of the system, allowing it to securely process sensitive data. The TEE ensures that trusted code can run securely, unaffected even if the external environment is compromised, such as ARM's TrustZone and Intel's SGX.
This design can even prevent the operating system or programs with administrative privileges from accessing the secure area. To ensure that the code running in the TEE is trustworthy, we use an attestation process. This verification can ensure that the TEE remains secure and unmodified. For example, in Intel SGX, a hash value is generated to represent the code and data in the SGX, and a hardware-managed private key can then prove the integrity of the code.
Unichain's Block building process takes place within the TEE of the TEE builders. Thanks to the TEE's features, these builders can first submit a proof to users, demonstrating that they are using the priority ordering Block building mechanism. This combination of features ensures that applications on Unichain can reliably extract a portion 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, achieving seamless cross-chain transactions through economic security. This concept is similar to MACH in AltLayer, which uses EigenLayer to achieve fast finality.
To become a decentralized node in Unichain, participants must stake UNI on the Ethereum mainnet. In each epoch, the nodes with the highest UNI staking balances will be selected as the active validators and participate in verification by running the Reth Unichain client. Additionally, similar to other networks, UNI holders can choose to delegate their staking.
3. Final Thoughts
As a DApp, Uniswap has already achieved strong product-market fit, and I am very optimistic about its transition to a dedicated L2. However, as liquidity fragmentation remains a challenge, it will be important to watch how the Uniswap team provides a seamless cross-chain transaction experience between Ethereum L1 and Unichain L2.
From an investment perspective, the UNI token is particularly interesting as it will now be used as the staking token for UVN. Given the strong performance of staking protocols like EigenLayer, Symbiotic, and Karak, we can expect a large amount of UNI to be staked in UVN, which will greatly promote the growth in value of UNI.
