Author: arndxt, Threading on the Edge; Translation: Golden Finance xiaozou
The Birth of Unichain
Unichain has the potential to mark the beginning of Ethereum’s decline as mainstream protocols like Uniswap siphon away value and activity, turning Ethereum into a pure settlement layer.
The impact of Uniswap is undeniable.
As the largest DEX, Uniswap has millions of users, and a large portion of Ethereum’s liquidity flows through the Uniswap protocol.
Finally, Uniswap announced the launch of its own blockchain, Unichain. This move may mark a strategic shift in the blockchain paradigm - from the traditional Fat Protocol Thesis to the upcoming Fat Application Thesis.
As Uniswap aims to consolidate its dominance, the move raises key questions about the future of Ethereum, ETH’s asset value, and potential DeFi liquidity reallocation and user experience.
In this article, I will give some of my thoughts and findings.
Key points:
Strategic Transformation to Fat Application Theory
Uniswap gains control of its own blockchain through Unichain, capturing more value from transaction fees and infrastructure.
Solving Scalability Issues with Flash Blocks and TEEs
Faster transactions (200-250 milliseconds) and lower gas fees improve user experience and network performance.
Minimize MEV
Reduce MEV vulnerabilities through fair gas auctions, saving users up to $1 billion in potential costs per year.
Liquidity Integration
Unichain’s centralized liquidity hub alleviates fragmentation issues and improves pricing efficiency across L2s.
Impact on Ethereum’s Status
Support Ethereum's rollup-centric roadmap and strengthen ETH's position as a secure settlement layer. (Controversial)
Enhanced security through Unichain Verification Service
By allowing UNI token holders to participate in transaction validation, network integrity and decentralization are improved.
New competitive landscape of DeFi
It sets an example for other DeFi applications to launch their own chains, drive vertical integration, and infrastructure control.
1. Uniswap’s DeFi dominance
Uniswap has been a key force in the DeFi field, occupying a considerable market share.
Market share: Uniswap accounts for approximately 46% of total Ethereum DEX volume, according to Dune Analytics.
Cumulative trading volume: Since its inception in 2018, Uniswap’s cumulative trading volume has exceeded US$1.7 trillion.
User Base and Adoption
Unique Address Traders: There are more than 71,500 unique address traders interacting with Uniswap’s smart contracts.
Daily Active Users: Uniswap currently has 1.2 million daily active users, highlighting its widespread adoption.
TVL (Total Value Locked): Uniswap’s total value locked is around $6 billion, making it one of the most liquid DeFi protocols.
2. Reasons why Uniswap launched Unichain
The scalability problem is to be solved through L2 solutions.
Ethereum’s scalability issue is a topic that people have been talking about for a long time.
High gas fees and slow transaction times impact the user experience and limit the network’s ability to handle a growing user base.
Ethereum’s rollup-centric roadmap aims to alleviate these issues by moving most transactions off the Ethereum chain, L1, to L2 solutions, which can process transactions more efficiently.
Unichain is built using OP Stack, an open source framework developed by Optimism that is designed to run on this Superchain, a network of interoperable blockchains that share the same standards.
By leveraging this technology, Unichain aims to solve the following problems:
(1) Scalability and performance issues
Ethereum’s network congestion and high gas fees have always been difficult to overcome. Uniswap’s goal in launching Unichain is to:
Improve transaction speed: The target block time is 200-250 milliseconds, significantly faster than Ethereum’s average of 12-15 seconds.
Lower transaction costs: Lower fees make it easier for DeFi to gain a wider user base.
(2) Infrastructure control and customization issues
Running on its own blockchain allows Uniswap to:
Implement protocol-level optimizations: Customize the blockchain to suit Uniswap’s specific needs, such as custom transaction ordering.
Introducing advanced features: Implementing innovations such as Flash Blocks and MEV minimization strategies.
(3) Liquidity fragmentation problem
By creating a centralized liquidity hub, Uniswap users will benefit from:
Unified Liquidity Pool: Unichain aims to pool liquidity that is currently distributed across multiple L2 solutions and sidechains.
Optimized pricing and slippage: Deeper liquidity brings better pricing and lower slippage for traders.
3. The transition from Fat Protocol theory to Fat Application theory
Fat Protocol: states that in a blockchain ecosystem, the protocol layer (such as Ethereum) garners the most value because it powers all applications.
Fat Application: The dominant application that is proposed can capture more value by owning a larger technology stack.
(1) Fat Protocol Theory
The theory was first proposed by Joel Monegro in 2016. It argues that in a blockchain ecosystem, most value is accumulated at the protocol layer rather than the application layer. This is in stark contrast to the traditional Internet model, in which the application layer (e.g. Facebook, Google) captures most of the value, while the underlying protocols (e.g. TCP/IP, HTTP) are relatively "weak" in terms of value capture.
The main contents of the Fat Protocol Theory are as follows:
Appreciation: Protocol tokens (like Ethereum’s ETH) appreciate in value because they are integral to the operation of the network and their scarcity combined with network effects drives demand.
Network effects: As more and more applications and users build on a protocol, the protocol itself becomes more valuable, solidifying its dominance.
Composability: Applications built on top of these protocols benefit from their security and decentralized nature, but individual applications capture less value.
(2) Fat Application Theory
The Fat App Theory challenges the Fat Protocol Theory by arguing that dominant applications can capture significant value by owning a larger portion of the technology stack, effectively “moving down” the stack. This theory is based on the idea that applications can differentiate themselves from competitors and create moats through proprietary features, enhanced user experience, and control over infrastructure.
The main contents of the fat application theory are as follows:
Value acquisition at the application layer: Applications can obtain more value through vertical integration, owning not only the interface but also part of the underlying infrastructure.
Differentiation: By controlling a larger portion of the stack, applications can offer unique features and optimizations that competitors cannot.
User Experience: Focusing on a seamless, efficient, and user-friendly experience can drive adoption and loyalty, further increasing the value of your application.
(3) Uniswap’s strategic transformation
By launching on Unichain, Uniswap:
Moving down the stack: taking control of underlying protocols to extract more value.
Enhanced value capture: Potentially increase revenue through transaction fees and other mechanisms.
Strengthen ecosystem control: guide development and innovation within the ecosystem.
4. What role will the shift to fat app theory play?
(1) Intensified competition among applications
As Uniswap’s launch of Unichain shows, the shift to fat apps will dramatically reshape the blockchain ecosystem. This move could lead to:
As competition between applications intensifies, other successful DeFi platforms will follow in Uniswap’s footsteps and launch their own chains.
This vertical integration allows applications to gain control over their infrastructure, enhancing performance in addition to improving the user interface.
This could lead to a new competitive landscape where applications differentiate themselves not only through functionality but also through the scalability and efficiency of their underlying infrastructure.
(2) Ecological fragmentation and integration
However, this transformation brings risks and opportunities in terms of ecological fragmentation and integration.
On the one hand, the growing number of application-specific chains could lead to fragmentation issues, making interoperability more challenging and potentially undermining the user experience that is critical to mass adoption.
On the other hand, a dominant application may attract smaller projects to build within its ecosystem, forming new centers of activity and potentially a consolidation of resources and user bases.
This evolution could affect the value dynamics between the protocol layer and the application layer. If applications start to capture more value, the dominance of the underlying protocol may decline relatively, and the network effect will shift to these application ecosystems as users and liquidity concentrate around them.
(3) Impact on the value of the protocol layer
The shift toward fat app theory challenges the dominance of traditional protocol layers.
As applications like Uniswap launch their own blockchains, they begin to capture more value — and become less dependent on the underlying protocol for transaction fees.
This could lead to a shift in network effects as users and liquidity concentrate on the ecosystems of these specific applications rather than the broader protocol layer.
As a result, protocols like Ethereum may face relatively declining value capture, while dominant applications will become new centers of activity and influence within that blockchain’s ecosystem.
5. Impact on Ethereum and ETH asset status
The launch of Unichain has sparked a debate about the future role of the Ethereum mainnet and the value accrual of ETH as an asset. I can say that migrating DeFi activities to L2 solutions may reduce the importance of the mainnet and have a negative impact on the value of ETH.
Another perspective to consider here is:
However, supporters believe that this evolution is in line with Ethereum's long-term vision. By serving as a secure decentralized settlement layer, the Ethereum mainnet can focus on providing data availability and finality, while L2 solutions handle scalability and user-facing applications. In fact, this symbiotic relationship can enhance ETH's value proposition as it is the underlying asset that supports the massive L2 network.
My thoughts are:
(1) Potential negative impact on ETH
Reduced ETH demand: If Unichain uses a different native token to pay gas fees, ETH demand may decrease.
Reduced transaction fees on Ethereum: The migration of activity to Unichain could lead to a reduction in fees charged to Ethereum validators.
Liquidity loss: Liquidity integration on Unichain may reduce liquidity on Ethereum mainnet and other L2s.
Wajahat Mughal also shared his findings/thoughts:
(2) Potential benefits to Ethereum
In keeping with Ethereum’s rollup-centric roadmap: Unichain still relies on Ethereum’s security and data availability.
ETH as a settlement layer: Ethereum can strengthen its position as the base settlement layer for multiple L2s.
Potential growth in Ethereum usage: Enhanced scalability could attract more users to the Ethereum ecosystem.
6. Unichain’s technological innovation
Unichain has launched a set of technological innovations that it hopes will increase transaction speed and security for users.
These innovations are Flash Blocks and Trusted Execution Environments (TEEs), which provide the following capabilities:
Supports sub-second transaction finality.
Reduce the risk of manipulation and ensure users conduct faster and more secure transactions.
Another important innovation is Unichain’s MEV (Maximum Extractable Value) minimization approach.
Through a fair priority gas auction system, Unichain ensures transparent and fair transaction ordering, reducing harmful MEV vulnerabilities such as sandwich attacks.
The system is expected to save users up to $1 billion a year by curbing exploits that often lead to higher transaction costs.
To further enhance security and decentralization, Unichain has integrated a Verification Service, where a network of validators continuously verifies the activities of the orderers responsible for transaction ordering.
This additional layer of security not only ensures the integrity of the network, but also invites community involvement by allowing UNI token holders to participate in network validation, creating a more decentralized, stronger ecosystem.
7. Conclusion
Unichain is a bold move by Uniswap, solidifying its position as a leader in DeFi and redefining how decentralized applications operate. By directly addressing scalability issues, minimizing MEV losses, and centralizing liquidity, Uniswap is taking control of its future in a way few dare. This strategic shift challenges Ethereum's traditional role, but fits seamlessly with Ethereum's rollup-centric vision.
I see this as a pivotal moment for DeFi. Uniswap’s decision to take control of the larger tech stack feels like the shift we’ve been waiting for in the space. I hope other DeFi projects will follow suit and reimagine how value is created and captured. Unichain represents the next wave of DeFi, and we’re seeing DeFi start to take off.
