Puffer UniFi: How to deal with the fragmentation challenge of Ethereum

Translator: Bai Hua Blockchain

Trump's recent victory has sparked a DeFi revival, putting Ethereum in a favorable position, as the platform holds 63% of global DeFi TVL, allowing it to leverage this momentum. Ethereum may have found the long-awaited catalyst that puts it in an ideal position to benefit from the change in power. Since the announcement of the US presidential election results, the Ethereum ecosystem has consistently exceeded expectations.

However, Ethereum's Rollup-centric roadmap, while crucial for scalability, also poses a major challenge: fragmentation. The current Rollup ecosystem operates in a winner-take-most environment, dispersing liquidity, attention, and users across isolated L2s. To fully capitalize on this resurgence of DeFi interest, Ethereum must address these divisive dynamics to create a more unified and accessible network.

1. Bridging the Divide: Solving Ethereum's Fragmentation and Liquidity Challenges

Puffer Finance's innovative solution, UniFi, directly addresses Ethereum's fragmentation challenge. We believe that once the market views it as an innovative new infrastructure solution, rather than just another Liquid Restaking Token (LRT), Puffer will perform exceptionally.

What was Puffer initially? Initially, Puffer was a leading LRT protocol focused on providing decentralized Staking solutions.

What is Puffer now? Puffer has evolved into an Ethereum-centric unified solution.

Puffer has evolved from the first native Liquid Restaking Protocol into a comprehensive Ethereum-integrated expansion ecosystem, consisting of three main components that this article will explore:

1) Decentralized Liquid Restaking Token (LRT)

Puffer's flagship anti-dilution LRT provides enhanced yields and security, supporting decentralized Staking within the Ethereum ecosystem.

2) UniFi-based Rollup Stack

A Layer 2-based ordering solution that achieves seamless interoperability between L2<>L2 and L2<>L1 transactions, providing efficient atomic composability for cross-chain interactions.

3) UniFi Preconf AVS

The industry's first pre-confirmed AVS, providing near-instant transaction finality for L1 and L2, significantly boosting the speed and reliability of the Ethereum network.

Puffer Finance's UniFi-based Rollup Stack transforms Ethereum's fragmentation into a positive-sum ecosystem.

2. The UniFi-based Rollup Stack - What is it? How does it work?

1) What is an L1-based Rollup?

L1-based Rollups are an advanced scaling approach that directly integrates Ethereum's shared ordering, avoiding reliance on centralized ordering (a common practice in other optimistic and zero-knowledge L2s). This concept was first proposed in a research paper by Justin Drake in March 2023, who defined it as follows:

"When a Rollup's ordering is driven by the underlying L1, we call it L1-based or L1-ordered Rollup. More specifically, an L1-based Rollup refers to the next L1 block proposer being able to collaborate with L1 searchers and builders to trustlessly include the next Rollup block as part of the next L1 block." - Justin Drake

For non-technical readers, this may be difficult to understand. In simple terms, an L1-based Rollup directly verifies transactions on L1, fully leveraging Ethereum's existing mechanisms in an efficient manner. Other mainstream Rollup solutions (such as optimistic and zero-knowledge) require first verifying transactions on L2, then submitting them to L1.

By using L1 ordering (performed by Ethereum validators), the following advantages can be achieved:

• Inheriting Ethereum network's liveness and decentralization, ensuring reliability without relying on single points of failure.

• Simpler infrastructure, as there is no need to run a dedicated ordering service.

• Faster execution, thanks to the pre-confirmation mechanism, achieving quicker transaction finality (to be discussed in detail later).

• Economic alignment with L1, creating new revenue opportunities for existing validators through non-extractive MEV (Maximum Extractable Value).

• Lower operating costs, as transaction ordering is handled by L1.

The main disadvantage is that L1-based Rollups cede MEV revenue to L1, with their own income limited to base transaction fees.

2) L1-based Rollup is superior to Optimistic Rollup

In short:

By optimizing the transaction ordering process at the base layer, costs can be reduced, and speed can be improved, while maintaining Ethereum's inherent security and decentralization.

3. Puffer is an L1-based Solution

UniFi is an Ethereum-based Rollup that allows the creation of App Chains through its technology stack.

They solve the problem of Ethereum's liquidity fragmentation by implementing atomic composability. Transactions on UniFi can directly interact with other L1-based Rollups without the need for cross-chain bridges, creating a unified liquidity and application layer. Developers can easily launch their own App Chains, capturing transaction fees, and leveraging the shared liquidity.

Their goal is to bring atomic composability to Ethereum, redefining what is possible on-chain. Through atomic composability, UniFi will allow L1 and L2 to achieve smooth and integrated interactions within a single Ethereum block. Imagine a user or protocol can deposit assets from L1 to UniFi, perform complex operations (such as trading or yield farming) on-chain, and then withdraw back to L1 within the same 12-second Ethereum block. This not only is lightning-fast, but also represents a significant advancement in blockchain interoperability.

Puffer is not in conflict with L1, but rather extends L1's functionality in an integrated manner.

1) How does it work?

Inspired by the collaborative research with Justin Drake, Puffer UniFi utilizes Trusted Execution Environments (TEEs) in its processing stack. To achieve real-time proofs, Puffer uses TEEs as an initial "training wheels". Real-time proofs can enhance interoperability. When the speed of zero-knowledge provers is fast enough, the prover can evolve from relying on trusted hardware to a fully zero-knowledge-based solution.

2) Puffer's Architecture Breakdown

3) Architecture Overview

Puffer's UniFi Preconf AVS provides L2 execution confirmation to users, allowing them to experience sub-second transaction speeds when interacting with UniFi. Within UniFi's universal Rollup, the native yield Token can be used as a Gas Token.

The consensus layer, data availability layer, and settlement layer are all components of the underlying Layer 1 (in this case, Ethereum). The Rollup is responsible only for the execution layer.

This is the unique aspect of Puffer's App Chain.

4) Why is this important?

Puffer has built its own App Chain using an L1-based Rollup, allowing EVM protocols to integrate seamlessly. This provides an opportunity for every participant in the ecosystem, from individual validators to large-scale decentralized applications (dApps), to participate and benefit, driving a faster, more efficient, and more decentralized evolution of Ethereum. Ethereum's fragmentation problem has persisted for too long, and now is the time for change.

5) Ecosystem Overview:

6) Growth Stages

Growth will be phased:

• Phase 1: They will introduce the L1-based Rollup to users and developers. Protocols not yet ready to run their own App Chains can deploy directly on UniFi.

4. UniFi Preconf AVS

UniFi provides near-instant execution confirmation through "Preconf". This is not just a speed boost, but a whole new way of scaling Ethereum. Preconf is a solution to Ethereum's fragmentation problem and provides ultra-fast confirmation.

1) How is it Achieved?

Due to Ethereum's 12-second block time limit, Preconf is key to improving the user experience. To this end, Puffer has developed a proprietary Preconf AVS that can provide instant confirmation that a transaction will be included in the next block, within about 100 milliseconds. This significantly improves the speed and reliability of the L1 Rollup ecosystem.

2) How it Works

There are two types of Preconf: Execution Preconf and Inclusion Preconf. Both can be used to provide faster confirmation for L1 or L2 users. The advantage of Execution Preconf is that it can provide users with a final and guaranteed commitment, including the state of the transaction execution. For example, it can confirm the execution price of a transaction, improving the user experience.

Implementing Execution Preconf on L1 is more complex, but Execution Preconf on L2 can effectively solve this problem. Puffer's UniFi AVS leverages this feature to significantly improve the user experience.

Preconf requires reliable collateralization. Since Preconf is a commitment made by the proposer (validator or delegated proposer), failure to fulfill it will result in penalties, such as Slashing. Protocols like EigenLayer play a key role in providing Slashing guarantees for Preconf. It's worth noting that Puffer's UniFi Preconf AVS is the first of its kind to run on EigenLayer.

3) UniFi: The Catalyst for a Unified Ethereum Ecosystem

UniFi's Synchronous Composability is transformative. Cross-Rollup interactions can be performed as seamlessly as on a single chain, eliminating the need for L2 bridges (which no one likes to use), reducing costs, and mitigating the security risks of asset transfers. UniFi's approach unifies liquidity, allowing developers and users to interact across chains seamlessly, unprecedented in enhancing the Ethereum user experience.

For developers, UniFi provides a unique opportunity to scale applications in a unified, low-friction environment. By eliminating the need for centralized ordering, UniFi significantly reduces operating costs, allowing developers to focus on the product without worrying about the complexity of managing isolated L2s. UniFi's setup makes launching L1-based Rollups almost as simple as deploying a smart contract, dramatically lowering the barrier to entry for developers and encouraging innovation.

4) Unlocking Revenue: How Puffer's Rollup and Preconf Create Value for the Ethereum Ecosystem

All revenue streams will generate Treasury rewards, governed by the $PUFFER Token.

Puffer's upgraded revenue model (not just LRT) leverages Rollup and Preconf to create sustainable value in the Ethereum ecosystem. Through Rollup, Puffer generates ordering fees by having Ethereum validators manage transaction ordering. This approach supports seamless interoperability between Ethereum L1 and L2, as well as between L2s, creating unified liquidity and composability. By integrating with the Ethereum validator network for ordering fees, Puffer captures transaction-based revenue while strengthening the local economic value of Ethereum.

Users can pay Preconf tips to prioritize their transactions, providing Puffer with an additional revenue stream beyond transaction inclusion fees. These fees and tips are recycled back into the Puffer ecosystem, enriching its native Tokens pufETH and unifiETH, and providing yields for Token holders.

As Puffer contributor Amir explains:

"If every user pays an additional fee for Preconf to ensure their transactions on Ethereum are faster and more reliable, then the AVS is tied to every transaction a user makes on Ethereum. This creates a very powerful revenue-generating AVS that can provide organic yields without the need for additional Tokens or secondary mechanisms."

5) Introducing vePuffer

A key to a protocol's sustainable long-term price performance is its Token economics design. Great protocols must have a well-thought-out Token model that focuses on the value proposition for long-term holders. Mechanism Capital is focused on Token economics design, supporting teams that innovate and maximize their Token value capture.

Puffer Finance has launched vePuffer as an update to its Token economics, aiming to deliver value to holders and align incentives across the entire ecosystem.

Key features include:

• Decentralized Governance: Through vePUFFER, the community can vote on PUFFER point allocations, aligning with Puffer's decentralization goals.

• Tradable Points: The ERC20 PUFFER points for Season 2 will be tradable, providing flexibility for early profits or additional purchases.

• Flexible Strategies: Tradable points allow users to choose to hold, sell, or buy based on personal strategies and market sentiment, enhancing risk management.

• Bribery Market: The protocol can offer rewards to vePUFFER holders to vote for their own liquidity pools, increasing the Annual Percentage Rate (APR) and liquidity.

• Competitive Protocols: The bribery system allows protocols to attract votes to increase APR, driving participation and aligning incentives.

• Community-Driven Rewards: The vePUFFER model promotes governance, speculation, and diversified strategies, empowering users to shape ecosystem incentives.

6) How Puffer's UniFi Stands Out: Revolutionizing the Ethereum Rollup Ecosystem

With the launch of UniFi, Puffer has created an opportunity for Ethereum to transition from a fragmented Rollup environment to a unified positive-sum ecosystem, bringing developers, users, and liquidity together in unprecedented ways. The result is a stronger, more resilient Ethereum capable of serving the needs of billions.

Disclaimer: The content of this article does not constitute investment advice.

Link to the article: https://www.hellobtc.com/kp/du/12/5594.html

Source: https://www.mechanism.capital/based-rollups-will-unify-ethereum-puffer-finance/