Unichain was unveiled just 3 hours ago.

Breaking news in the crypto industry: Uniswap, the leading AMM DEX, has officially announced its own Layer 2 solution, Unichain.

Several years ago, I speculated on the likelihood of Uniswap developing its own network and argued against it due to potential UX challenges. However, with the unveiling of Unichain, my prediction has been proven wrong.

To get straight to the point, Unichain have a whitepaper that’s just three pages long, but a closer look reveals it as a masterpiece. It brings together Uniswap’s long-standing focus on UX, Flashbots’ latest MEV research, and the expansive ecosystem built by OP-Stack. While the content is brief, the whitepaper touches on complex topics such as TEE, priority ordering, and MEV-tax, which could be challenging for readers unfamiliar with MEV basics. Therfore, this article aims to provide a quick and simple breakdown of the key features of Unichain for easier understanding.

1. Problems

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

For instance, the Ethereum network offers immense liquidity but suffers from low scalability and vulnerability to malicious MEV (Maximal Extractable Value). Various rollup solutions have emerged to address these issues, yet most are currently operated by a single sequencer, leading to potential single points of failure such as liveness failure and censorship.

Additionally, the block-building process on Ethereum and most rollup networks involves a public mempool, creating an environment where users(searchers) extract MEV—whether good or bad—from other users. Also due to the structure of the MEV value chain, there’s an imbalance where the value is disproportionately captured by proposers, rather than benefiting the users.

2. Enter Unichain

2.1 Overview

Unichain, an Etehreum optimistic rollup based on OP Stack, was introduced by Uniswap, Flashbots, OP Labs, and Paradigm to address the issues mentioned above. Unichain offers several key advantages through 1) Verifiable Block Building and 2) the Unichain Validation Network:

• [ ] Fast state updates
• [ ] Enabling applications to extract and internalize MEV
• [ ] Quick settlement via rapid economic finality

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

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

2.2 Verifiable Block Building

Verifiable Block Building is made possible through Rollup-Boost, a feature developed in collaboration with Flashbots. Rollup-Boost offers two key functionalities: Flashblocks and Verifiable Priority Ordering. Similar to MEV-Boost, Rollup-Boost functions as sidecar software.

2.2.1 Flashblocks

Flashblocks are a type of pre-confirmation issued by TEE builders (which we will explore in more detail below). Unichain generates partial blocks, splitting a single block into four parts, with each partial block being created every 250ms and sent to the sequencer.

The sequencer continuously downloads these partial blocks while simultaneously executing transactions, providing users with early execution confirmations. These partial blocks are guaranteed to be included in the final proposed block by the sequencer. This process allows for faster state updates, reducing latency, improving user experience, and mitigating 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 order transactions solely based on the priority fee and do not engage in censoring or delaying actions. This model is only viable when there is a single or trusted block proposer. In competitive environments like Ethereum L1, where multiple proposers build blocks, Priority Ordering is not feasible.

The purpose of Private Ordering is to allow dApps on the mainnet to impose an MEV tax on the transactions interacting with them, enabling the extraction of a portion of MEV value. This value can be used internally by the dApp or redistributed to users. The MEV tax is a fee imposed by a smart contract on transactions, which can be set as a function of the transaction’s priority fee. Let’s look at an example.

The 100y DEX on Unichain L2 wants to directly extract MEV value from the MEV transactions occurring on its exchange. Since it knows that blocks on Unichain are built using Priority Ordering, this means that the MEV value of any transaction is determined solely by its priority fee. 100y DEX sets an MEV tax equal to 99 times the transaction’s priority fee.

If an arbitrage opportunity worth 100 ETH arises, how much max priority fee would searchers submit to extract it? The answer is 1 ETH. Setting the priority fee at 1 ETH results in an MEV tax of 99 ETH, totaling 100 ETH. If searchers set a priority fee higher than 1 ETH, the total cost would exceed 100 ETH, leading to a loss. As a result, 100y DEX can capture maximum 99 ETH of the 100 ETH MEV value.

For regular users who do not capture MEV value, the priority fee would be set much lower, meaning 100y DEX won’t extract value from these transactions. Instead, it will only capture MEV value represented by the priority fee. This setup allows applications to extract MEV directly, opening up various potential use cases.

2.2.2.2 Verifiable…? Use TEE!

The key here is ensuring that the entity responsible for block building is using the Priority Ordering mechanism. To achieve this, Unichain has implemented two measures: 1) It separates the sequencer and block builder, similar to the PBS model, and 2) It enforces block builders to use TEE (Trusted Execution Environment) to allow anyone to verify that the Priority Ordering mechanism is being used.

(Source: Android)

A Trusted Execution Environment (TEE) is a secure section within hardware, such as a CPU, that operates independently from the rest of the system to safely process sensitive data. TEEs ensure 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, like fingerprints or facial recognition, is processed on mobile devices within a TEE.

This design prevents even the operating system or programs with administrator privileges from accessing the secure area. To ensure the code running in the TEE is trustworthy, an attestation process is used. This verification ensures the TEE remains in a secure and untampered state. For instance, in Intel SGX, a hash value is generated to represent the code and data within the SGX, while a hardware-managed private key proves the integrity of the code.

Unichain’s block building process takes place within the TEE builders’ Trusted Execution Environment (TEE). Thanks to the properties of TEE, these builders can initially submit an attestation to prove to users that they are utilizing 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 Validation Network

The Unichain Validation Network is a decentralized network of node operators responsible for validating 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 to achieve fast finality, as well as Nuffle’s fast finality layer and the recent fast finality idea presented by Symbiotic.

To become a decentralized node in Unichain, participants must stake UNI on the Ethereum mainnet. Each epoch, nodes with the highest staked UNI balances are selected for the active set and participate in validation by running the Reth Unichain client. Additionally, similar to other networks, UNI holders have the option to delegate their stake.

3. Final Thoughts

Uniswap has already achieved strong product-market fit as a dApp, and I view its move towards an Ethereum-based app-specific L2 very positively, especially as it looks to expand its ecosystem. However, with liquidity fragmentation still being a challenge, the key will be watching how the Uniswap team delivers a seamless cross-chain transaction experience between Ethereum L1 and Unichain L2.

From an investment perspective, it’s particularly interesting that the UNI token will now be used as the staking token for UVN. Considering the strong performance of restaking protocols like EigenLayer, Symbiotic, and Karak, we can expect a significant amount of UNI to be staked in UVN, which would greatly contribute to UNI’s value accrual. Following today’s announcement, UNI has already risen by about 12%, placing it in the top 20 by market cap. Given UNI’s already high market cap compared to other tokens, it will be interesting to see how further UNI staking impacts its price moving forward.

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