Explaining how Puffer UniFi deals with the fragmentation challenge of Ethereum

Author: Roland Roventa

Translation: Plain Language Blockchain

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

However, while Ethereum's Rollup-centric roadmap is critical to scalability, it also presents a major challenge: fragmentation. The current Rollup ecosystem operates within a largely winner-takes-all environment, dispersing liquidity, attention, and users across isolated L2s. To fully leverage DeFi's resurgent interest, Ethereum must address these divisive dynamics to create a more cohesive and accessible network.

1. Bridging the Gap: Addressing Ethereum's Fragmentation and Liquidity Challenges

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

What was Puffer originally? Initially, Puffer was a leading LRT protocol focused on providing a decentralized staking solution.

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

Puffer has evolved from the first local Liquid Restaking Protocol to a comprehensive Ethereum-integrated ecosystem, consisting of the three main components to be explored in this article:

1. Decentralized Liquid Restaking Token (LRT)

Puffer's flagship anti-reduction LRT provides enhanced returns and security, supporting decentralized staking within the Ethereum ecosystem.

2. Rollup Stack based on UniFi

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

3. UniFi PreconfAVS

The industry's first pre-verification AVS provides almost instant transaction finality for L1 and L2, significantly improving 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. UniFi-based Roll-up Stack - What is it? How does it work?

1. What is L1-based Roll-up?

L1-based roll-ups are an advanced scaling method that integrates directly with Ethereum's shared sequencers, avoiding reliance on centralized sequencers (a common practice for other optimistic and zero-knowledge L2s). The concept was first proposed in March 2023 in a research article by Justin Drake, who defined it as follows:

"When the sorting of Roll-up is driven by the underlying L1, we call it L1-based or L1 sorting Roll-up. More specifically, L1-based Roll-up refers to the collaboration between the next L1 block proposer, L1 searcher, and builder without permission to include the next Roll-up block as part of the next L1 block." - Justin Drake

For non-technical people, this passage may be difficult to understand. In simple terms, L1-based Roll-up directly verifies transactions on L1, making full use of the efficient solutions of the existing Ethereum mechanism. Other mainstream Roll-up solutions (such as optimistic and zero-knowledge types) require transactions to be verified on L2 first, and then sent to L1.

By basing on L1 sorting, which is performed by Ethereum validators, the following benefits can be achieved:

Inherits the activity and decentralization characteristics of the Ethereum network, ensuring reliability without relying on single points of failure.

Infrastructure is simpler because there is no need to run a dedicated sorter.

Faster execution speed, thanks to the pre-confirmation mechanism, achieving faster transaction finality (detailed discussion will follow).

Aligning with L1's economy, creating new revenue opportunities for existing validators through non-extractive MEV (Maximum Extractable Value).

Lower operating costs, as trade sequencing is handled by L1.

The main disadvantage is that the L1-based Roll-up will transfer MEV benefits to L1, and its own income is limited to basic transaction fees.

2. L1-based Rollup is better than optimistic Rollup.

In short:

By optimizing the transaction sorting process at the base layer, costs can be reduced, speed can be improved, while maintaining the inherent security and decentralization of the Ethereum network.

3. Puffer is a solution based on L1

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

They solved the problem of liquidity fragmentation on Ethereum by achieving synchronous composability. Transactions on UniFi can directly interact with other L1-based roll-ups without the need for cross-chain bridges, creating a unified liquidity and application layer. Developers can easily launch their own appchains, capture transaction fees, and take advantage of shared liquidity.

Their goal is to bring atomic composability to Ethereum and redefine the functions that can be achieved on-chain. Through atomic composability, UniFi will allow for smooth and integrated interactions between L1 and L2 within a single Ethereum block. Imagine a user or protocol depositing assets from L1 into UniFi, performing complex operations such as trading or yield farming on-chain, and then withdrawing back to L1 in the same 12-second Ethereum block. This is not only extremely fast, but also represents a significant advancement in blockchain interoperability.

Puffer is not in conflict with L1, but extends the functionality of L1 in an integrated manner.

1. How does it work?

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

2. Architecture Analysis of Puffer

! [A detailed explanation of how Puffer UniFi tackles the fragmentation challenge of Ethereum] (https://cdn-img.panewslab.com/yijian/2024/12/22/images/129137c1b4c2c389f54bda48ea5ca2ea.png)

3. Architecture Overview

Puffer's UniFi Preconf AVS provides users with L2 execution confirmation, allowing users to experience sub-second transaction speeds when interacting with UniFi. In UniFi's general Rollup, local yield tokens can be used as gas tokens.

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

This is exactly the unique feature of the Puffer application chain.

4. Why is this important?

Puffer has built its own application chain based on L1 Rollup, enabling seamless integration of the EVM protocol. This provides an opportunity for every participant in the ecosystem, from individual validators to large-scale decentralized applications (dApps), to participate and benefit, thereby driving faster, more efficient, and more decentralized Ethereum development. The fragmentation problem of Ethereum has persisted for too long, and now is the time for change.

5. Ecosystem Overview:

6. Growth Stage

Growth will be phased.

Phase one: they will introduce L1-based Rollup to users and developers. Protocols that are not ready to run their own application chains can be deployed directly on UniFi.

Phase 2: UniFi SDK will go live, allowing any dApp developer to create their own application chain in a more simplified manner.

4. UniFi Preconf AVS

UniFi provides nearly instant execution confirmation through "Preconf". This is not just a speed improvement, but a whole new way of extending Ethereum. Preconf is a solution to Ethereum fragmentation and provides super fast confirmation.

1. How to implement?

Due to the 12-second block time limit on Ethereum, transaction finality is slow, and pre-confirmation (Preconf) has become key to improving user experience. To this end, Puffer has developed its proprietary Preconf AVS, which can provide instant confirmation that a transaction will be included in the next block in about 100 milliseconds. This greatly improves the speed and reliability of the L1 Rollup ecosystem.

2. Working Principle

Pre-commitment can be divided into two types: execution pre-commitment and inclusion pre-commitment. Both can be used to provide faster confirmation for L1 or L2 users. The advantage of execution pre-commitment is that it can provide users with final and guaranteed commitments, including the state at the time of confirming transaction execution. For example, it can confirm the execution price of a transaction, thereby improving user experience.

Implementing execution pre-confirmation in L1 is more complicated, but execution pre-confirmation in L2 can effectively solve this problem. Puffer's UniFi AVS takes advantage of this feature to significantly improve user experience.

Pre-confirmation requires reliable guarantees. Since pre-confirmation is a commitment made by the proposer (validator or delegated proposer), failure to fulfill it will result in penalties, such as slashing. Heavy staking protocols like EigenLayer play a critical role in providing cutting guarantees for pre-confirmation. It is worth noting that Puffer's UniFi Preconf AVS is the first of its kind to run on EigenLayer.

3. UniFi: the catalyst for Ethereum's unified ecosystem

UniFi's Synchronous Composability is disruptive. Interactions across Rollups can be conducted as if on a single chain, eliminating the need for L2 bridges (no one likes using bridges), reducing costs, and mitigating security risks associated with asset transfers. UniFi's approach unifies liquidity, enabling seamless cross-chain interactions for developers and users, greatly enhancing the Ethereum user experience.

For developers, UniFi provides a unique opportunity to expand applications in a unified, low-friction environment. By eliminating the need for centralized ordering, UniFi significantly reduces operating costs, allowing developers to focus on products without worrying about managing the complexity of isolated L2. UniFi's setup makes launching L1-based Rollups almost as simple as deploying smart contracts, greatly reducing the entry barrier for developers and encouraging innovation.

4. Unlocking revenue: How Puffer's Rollup-based and pre-confirmed technology creates value for the Ethereum ecosystem

All revenue streams will generate treasury rewards and be governed by $PUFFER Token.

Puffer's upgraded revenue model (not just LRT) utilizes Rollup-based and pre-commitment to create sustainable value in the Ethereum ecosystem. By using Rollup, Puffer generates sorting fees by letting Ethereum validators manage transaction ordering. This approach supports seamless interoperability between Ethereum L1 and L2, as well as between different L2s, creating unified liquidity and composability. Through the integration of sorting fees with the Ethereum validator network, Puffer captures transaction-based revenue while enhancing the native economic value of Ethereum.

Users can prioritize their transactions by paying a pre-confirmed tip, which provides Puffer with additional income sources beyond transaction fees. These fees and tips are recycled back into the Puffer ecosystem, enriching its native tokens pufETH and unifiETH, and providing earnings for token holders.

As explained by Puffer contributor Amir:

"If each user pays an additional fee for pre-confirmed payment to ensure faster and more reliable transactions on Ethereum, then AVS is associated with every transaction made by the user on Ethereum. This creates a very powerful income-generating AVS that can provide organic revenue continuously without the need for additional tokens or secondary mechanisms."

5. vePuffer launch

The key to a protocol achieving sustainable long-term price performance lies in its token economic design. An excellent protocol must have a well-thought-out token model that focuses on providing value to long-term holders. Mechanism Capital focuses on token economic design, supporting teams that innovate and maximize their token value capture.

Puffer Finance has launched vePuffer as an update to the token economy, aiming to deliver value to holders and align incentives throughout the ecosystem.

The main features include:

Decentralized governance: Through vePUFFER, the community can vote to determine the distribution of PUFFER points, aligning with Puffer's goal of decentralization.

Tradable Points: ERC20 PUFFER Points in Season 2 are tradable, providing the flexibility to make early profits or make additional purchases.

Flexible Strategies: Tradable Points enable users to choose to hold, sell or buy based on their personal strategy and market sentiment, enhancing risk management.

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

Competitive Agreement: The bribery system allows the agreement to attract votes to increase APR, promote participation, and align incentives.

Community-driven rewards: The vePUFFER model promotes governance, speculation, and diversified strategies, empowering users to shape the ecosystem incentives.

6. How does Puffer's UniFi stand out: Innovating the Ethereum Rollup ecosystem

With the launch of UniFi, Puffer creates an opportunity for Ethereum to transition from a fragmented Rollup environment to a unified and positive ecological ecosystem, bringing together developers, users, and liquidity in unprecedented ways. The result is a more powerful and flexible Ethereum that can meet the needs of billions of people.