Puffer Finance's Innovative Leap: Bridging Ethereum's Liquidity Gaps with Base Rollups

2024-07-10, 01:54

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## [TL; DR]
With Puffer Finance <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> validators are now able to stake 1 ETH.

The Ethereum network will become more secure than before due to the participation of many validators.

Puffer Finance’s staking and restaking facility will generate greater yield for Ethereum stakers than before.

## Introduction
Puffer Finance, operating on the Ethereum blockchain, is one of the leading platforms offering crypto staking and restaking services. The protocol has made it easier for stakers to participate in Ethereum’s validation process due to the reduction of the required staked ETH. This article discusses the technology which Puffer Finance uses to achieve its vision. We will also look at its contribution to the Ethereum ecosystem and the entire blockchain sector.

## Puffer Finance’s Focus on Liquid Staking Derivatives (LSD): Its Contribution to the Ethereum Ecosystem
Puffer Finance, a [blockchain based project](https://www.gate.io/learn/articles/what-is-puffer-finance-all-you-need-to-know-about-pufeth/2330 "blockchain based project") built on Ethereum’s Eigenlayer protocol and focused on staking liquid derivatives (LSD), has partnered with the Ethereum Foundation to develop based rollups after securing $18 million in venture capital. Puffer Finance’s main aim is to launch its mainnet, a platform where stakers and validators will stake and restake their crypto assets.

Based rollups are a technology for streamlining layer-1 blockchain operations by processing transactions off-chain, thereby reducing congestion and enhancing scalability. The rollups then bundle the transactions into a single finalized transaction. Puffer Finance, with a TVL of $1.7 billion, has been trending in the crypto news sector for its yield generation and decentralized validation provisions.

In fact, Puffer Finance offers crypto investors a lucrative earning opportunity. It allows investors [to stake ETH and get staking and restaking yield in return](https://www.gate.io/learn/articles/staking-innovation-an-in-depth-look-at-puffer-finance/2981 "to stake ETH and get staking and restaking yield in return"). Thus, apart from staking ETH as the primary asset the investors can also restake the protocol’s Native Liquid Restaking Token (nLRT). Puff Finance’s nLRT known as pufETH uses ETH as a collateral rather than the traditional Liquid Staking Tokens (LSTs). As a result, the investors benefit from traditional PoS yields and restaking yields, [generated through Eigenlayer smart contracts](https://www.gate.io/learn/articles/puffer-finance-overcoming-the-centralization-dilemma-of-the-lst-lrt-track/3148 "generated through Eigenlayer smart contracts"). Also, note that the pufETH stakers earn rewards from protocols that have partnered with Puff Finance.  
## Puffer Finance’s Scaling Solution: Using Base Roll Ups and Sequencing 
Rollups and based sequencing form the basis of Puff Finance’s envisioned architecture which will enhance interoperability among smart contracts to reduce or eliminate liquidity fragmentation that is ruling the roost in the DeFi sector at the moment. Liquidity fragmentation refers to the existence of liquidity pools that are independent of each other in the DeFi sector. In other words, there is no consolidated and ease-to- access liquidity market in the industry.

Amir Fourouzani, co-founder of Puffer Finance views liquidity fragmentation as one of the key challenges that exists in the DeFi sector. During an[ interview with Cointelegraph Fourouzani said](https://cointelegraph.com/news/ethereum-lsd-solution-puffer-finance-moves-to-base-rollups " interview with Cointelegraph Fourouzani said"), “Currently, there’s a challenge in the Ethereum ecosystem known as liquidity fragmentation. This issue arises from the fact that current L2 projects are each creating their own ‘super chains,’ leading to isolated pools of liquidity.”

The technology which some crypto projects like <a href="/uk/price/optimism-op" target="_blank" class="blog_inner_link">Optimism</a>, Arbitrum, and ZKSync are using promote independent 'super chains' that segregate liquidity pools resulting in fragmentation. Thus, Puff Finance’s technology (based-sequencing and based rollups) has led to a DeFi revolution where appchains communicate and share liquidity.

Fourouzani added, “To address this, the industry needs solutions like based-sequencing and based rollups to ensure interoperability and communication between these chains.” To achieve this Fourouzani explained that Puff Finance devised a method of organizing pre-confirmations on Ethereum layers in a way that keeps the network decentralized. The collaboration between Ethereum Foundation and Puff Finance shows the two organizations’ commitment to enhance scalability and interoperability through based-sequencing and rollups.
 
Commenting on this development, [Fourouzani said](https://cointelegraph.com/news/ethereum-lsd-solution-puffer-finance-moves-to-base-rollups "Fourouzani said"), “It took us years to architect and come up with this, but now we have it. This is the current central area of research for the Ethereum Foundation. The thought leaders over there are trying to push this forward with leaders such as Justin Drake and others,”.
He also provided details of a possible scenario where protocols will share liquidity. “In the future, every company is going to have its host AppChain. Let’s say <a href="/uk/price/aave-aave" target="_blank" class="blog_inner_link">Aave</a> has its own AppChain, and liquidation is going to hit Aave; well, it’s going to be represented on <a href="/uk/price/uniswap-uni" target="_blank" class="blog_inner_link">Uniswap</a> immediately on Uniswap’s AppChain. This is the ultimate dream. Uniswap and Aave don’t have to go through any governance token or rely on any governance process.”

The same expert explained how interoperable app chains will enable the flourishing of yield farming within the Ethereum ecosystem. He said, “A lot of users would rather have their tokens generating yield with no effort in their wallets rather than just keeping it on the base chain.” The interoperability that the AppChain will enhance will make this possible.

Read also: [How to Buy pufETH (PUFETH)](https://www.gate.io/how-to-buy/pufeth-pufeth "How to Buy pufETH (PUFETH)")

## Making What Seemed Impossible Possible: How Puffer Finance's LSD Technology Works 
Puffer Finance has another great innovation in the form of its LSD technology that enables Ethereum validators to stake only 1 ETH instead of 32 ETH. This technology allows the validators to earn Puffer liquid restaking tokens (nLRTs) thereby generating additional income. Therefore, the stakers can restake the nLRTs tokens and earn rewards for that.

In its Medium post, [Puffer Finance said](https://medium.com/puffer-fi/introduction-to-puffer-finance-57f5483a5cee "Puffer Finance said"), “We significantly lower the entry barriers to run a validator; whereas a typical validator has to stake a 32 ETH bond to participate, Puffer enables anyone to operate a validator with as little as ‘1 ETH’. This reduced entry requirement enables Node Operators to achieve comparable yield potentials as traditional ETH stakers, enhancing their returns without significant initial investment, while simultaneously keeping Ethereum’s framework decentralized and robust.”

Read also: [The Hype of Restaking Narratives](https://www.gate.io/learn/articles/the-hype-of-restaking-narratives-what-are-the-restaking-projects-beyond-the-ethereum-ecosystem/1699 "The Hype of Restaking Narratives")
## Puffer Finance's future in the Ethereum ecosystem and DeFi
Puffer Finance has much to offer to the Ethereum ecosystem. First, by reducing the capital requirements for Ethereum validators it promotes the decentralization nature of the network. The reason is that many validators will participate in the network.

The increase in the number of validators will further strengthen its security and integrity. Regarding this [Puff Finance said](https://medium.com/puffer-fi/introduction-to-puffer-finance-57f5483a5cee "Puff Finance said"), “let’s underscore our core mission: to enhance, secure and decentralize the Ethereum ecosystem through innovative restaking solutions.”

It continued, “Puffer is not just about offering a platform for staking; we’re setting new standards in how Ethereum’s network operates, ensuring it remains robust, decentralized, and profitable. By integrating native [restaking on EigenLayer](https://www.gate.io/learn/articles/why-has-re-staking-dominated-social-media/2075 "restaking on EigenLayer"), we expand viable revenue streams for node operators and stakers alike, ensuring that everyone involved enjoys enhanced rewards and greater security.”

Read also more about [Staking, Restaking, and LRTfi](https://www.gate.io/learn/articles/staking-restaking-and-lrtfi/2003 "Staking, Restaking, and LRTfi")
## Conclusion 
Puffer Finance has much to offer to the Ethereum ecosystem and the DeFi sector in general. For example, it has created room for many people to invest in ETH and the DeFi sector. Many investors can now become validators thanks to Puff Finance that enables them to participate in the validation process through staking only 1 ETH. The Ethereum network will also become more secure than before due to the active involvement of many validators.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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