Author: Roland Roventa
Trump's victory sparked a renaissance in DeFi, positioning Ethereum (which holds 63% of the total locked value in global DeFi) to potentially break through with this momentum. Since the announcement of the U.S. presidential election results, the performance of the Ethereum ecosystem has consistently exceeded expectations.
However, while Ethereum's rollup-based scaling route is crucial for scalability, it faces a significant challenge: fragmentation. The current rollup ecosystem is in a winner-takes-all state, leading to liquidity, user attention, and user groups being scattered across isolated L2 chains. To fully tap into the potential resurgence of DeFi, Ethereum must address these divisive dynamics and build a more unified and open network.
Bridging the gap: Addressing the fragmentation and liquidity challenges of Ethereum.
Puffer Finance's innovative solution – UniFi, directly addresses the fragmentation challenge of Ethereum. We believe that once the market recognizes that Puffer is not just another liquidity re-staking token (LRT), but an innovative infrastructure solution, its performance will exceed expectations.
Puffer's past: Puffer was initially a leading LRT protocol focused on providing decentralized staking solutions.
Puffer's present: Puffer has now evolved into an Ethereum-centered unified solution. Puffer has transitioned from the first native liquidity re-staking protocol to a comprehensive Ethereum-integrated scaling ecosystem consisting of the following three core components:
1. Decentralized Liquidity Re-staking Protocol (LRT)
Puffer's flagship product, featuring anti-slashing properties, offering high yields and security, supporting decentralized re-staking in the Ethereum ecosystem.
2. UniFi Based Rollup Stack
An L2 based serialization solution that enables seamless interactions between L2>L2 and L2>L1, supporting atomic composability for efficient cross-chain operations.
3. UniFi Pre-confirmation AVS
The industry's first pre-confirmation AVS provides near-instant transaction finality for L1 and L2 transactions, significantly enhancing the speed and reliability of the Ethereum network.
Through the UniFi based rollup stack, Puffer Finance transforms Ethereum's fragmentation into a positive-sum ecosystem.
Puffer UniFi Based Roll-up Stack – What is it? How does it work?
What are based roll-ups?
Based rollups are an advanced scaling method that integrates directly with Ethereum's shared orderers, eliminating the reliance on other commonly used centralized orderers in L2 (such as optimistic or zero-knowledge proof L2s). The core idea was first proposed by Justin Drake in a research paper in March 2023:
"Based rollup, that is, a rollup ordered by L1, refers to a rollup whose ordering is driven by the underlying L1. Specifically, a based rollup means that the next L1 proposer can work with L1 seekers and builders to include the next rollup block in the next L1 block without permission." - Justin Drake
For those without a technical background, the above description may seem complex. Simply put, based rollups directly validate transactions on L1, fully leveraging the efficiency of Ethereum's existing mechanisms. In contrast, other common rollup solutions (such as optimistic & ZK) typically validate transactions on L2 before submitting them to L1.
Through based ordering (utilizing Ethereum L1 validators for ordering), the following advantages can be gained:
● Inherits the activity and decentralization characteristics of the Ethereum network: Ensures reliability and is not impacted by single points of failure.
● Simplified infrastructure: No need to run independent orderers.
● Faster execution speed: Achieving faster transaction finality through pre-confirmations (to be elaborated later).
● Aligned economic interests with L1: Creating new revenue opportunities for existing validators through non-invasive MEV (maximum extractable value).
● Reduced operational costs: Because transaction ordering is handled by L1.
Based Rollups > Optimistic Rollups
tl’dr:
Features
Based Rollups
Optimistic Rollups
Ordering mechanism
Managed by Ethereum's decentralized L1 validators
Centralized orderers
Confirmation time
Pre-confirmation mechanism, nearly instant confirmation (within 100 milliseconds)
Longer, due to delays from fraud proofs
Security model
Inherits the security and decentralization of Ethereum L1
Assumed validity; relies on fraud proofs.
Interoperability
Synchronous composability across L1 and Rollup
Limited, often asynchronous due to validation
Composability
Unified liquidity between L1 and Rollup
Fragmentation of liquidity between rollups
User experience
Seamless experience, leveraging pre-confirmations to enhance speed
Slower, affected by fraud proof verification
By optimizing the underlying transaction ordering process, costs can be reduced, speed increased, while retaining the inherent security and decentralization characteristics of the Ethereum network.
Puffer is Based
Puffer UniFi is an Ethereum-based based rollup that enables the creation of application chains through its tech stack.
It addresses the liquidity fragmentation issue in Ethereum by achieving synchronous composability. Transactions on UniFi can directly interact with other based rollups without bridging, thereby creating unified liquidity and application layers. Developers can easily launch their own application chains, capture transaction fees, and leverage shared liquidity.
UniFi aims to bring atomic composability to the Ethereum chain – redefining the possibilities of on-chain interactions. Through atomic composability, UniFi will allow Layer 1 and Layer 2 to achieve smooth, integrated interactions within a single Ethereum block. For example, users or protocols can deposit assets from L1 into UniFi, execute complex operations (such as swaps or liquidity mining), and then withdraw the assets back to L1 within the same 12-second Ethereum block. This is not only fast but represents a significant breakthrough in blockchain interoperability.
Puffer does not compete with L1 but collaborates with L1 to expand its functionalities in an integrated manner.
How does it work?
Inspired by collaborative research with Justin Drake, Puffer UniFi incorporates Trusted Execution Environments (TEEs) into its processing stack. To achieve real-time proofs, Puffer plans to use TEEs as a temporary auxiliary tool. The realization of real-time proofs can significantly enhance interoperability. Once zero-knowledge proof (ZK proof) technology reaches sufficient speed, provers will be able to transition from relying on trusted hardware to fully zero-knowledge-based solutions.
Puffer UniFi's Architectural Analysis
Architecture Overview - Puffer's UniFi Pre-confirmation AVS offers L2 execution confirmation services to users. When users interact through UniFi, they can experience sub-second transaction speeds. In the UniFi general Rollup, native yield tokens can be used as fuel (Gas) tokens.
Consensus layer, data availability layer, and settlement layer are handled by the base layer (Layer 1, i.e., Ethereum). Rollup focuses on execution layer functionalities.
This is precisely what makes Puffer's application chain (app-chain) unique.
Why is this important?
Puffer is building its own application chain (app-chain) utilizing based rollups, enabling seamless integration of EVM protocols. This provides an opportunity for everyone in the ecosystem, whether individual validators or large dApps, to benefit from a faster, more efficient, and more decentralized Ethereum. The fragmentation issue of Ethereum has persisted for too long; it is time to change this status quo.
Ecosystem Overview
Growth will be phased:
Phase one: Puffer will introduce based rollups to users and developers. For protocols not yet ready to run their own application chains, deployment can be done directly on UniFi.
Phase two: UniFi will launch an SDK to enable any dApp developer to quickly build and deploy their own application chain in a simplified manner.
UniFi Pre-confirmation AVS
UniFi provides near-instant execution confirmations through pre-confirmation (preconf) technology. This is not just a speed enhancement but a whole new Ethereum scalability solution. The pre-confirmation technology addresses Ethereum's fragmentation issues while providing extremely fast transaction confirmations.
How is it achieved? Due to Ethereum's 12-second block time limiting the quick finality of transactions, pre-confirmation (preconf) becomes crucial for enhancing user experience. To address this issue, Puffer has developed a proprietary pre-confirmation AVS technology that provides near-instant (approximately 100 milliseconds) transaction confirmation guarantees, ensuring transactions will be included in the next block. This innovation greatly enhances the speed and reliability of the based rollup ecosystem.
How does it operate?
Pre-confirmations (preconfs) are divided into two types: Execution pre-confirmations and Inclusion pre-confirmations. Both can be used to provide users with faster transaction confirmations on L1 or L2: The advantage of Execution pre-confirmations lies in providing users with final and guaranteed commitments, including state confirmations after transaction execution. For example, it can confirm the price at which a transaction was executed, significantly enhancing user experience.
Achieving execution pre-confirmation on L1 poses certain challenges; however, L2's execution pre-confirmation effectively addresses this issue. Puffer UniFi AVS leverages this capability to provide a more optimized user experience.
The guarantee mechanism of pre-confirmations: Pre-confirmations represent the proposer's (validator or authorized proposer) commitment to users. If this commitment cannot be fulfilled, penalties should apply, such as slashing. Re-staking protocols like EigenLayer play a significant role in providing slashing guarantees for pre-confirmations. Notably, Puffer UniFi Pre-confirmation AVS is the first of its kind to operate on EigenLayer.
Puffer UniFi: The catalyst for the next chapter of Ethereum – unification
UniFi's synchronous composability is a disruptive innovation. Cross-Rollup interactions feel like operating on a unified chain, eliminating the need for L2 bridges (which everyone dislikes), thereby reducing costs and mitigating security risks associated with asset transfers. UniFi's approach achieves liquidity unification, enabling developers and users to seamlessly interact across chains, significantly enhancing Ethereum's liquidity and user experience.
Implications for developers: UniFi offers developers a unique opportunity to scale applications in a unified and low-friction environment. By eliminating centralized orderers, UniFi significantly reduces operational costs, allowing developers to focus on the product itself without worrying about the complexities of isolated L2 applications. Furthermore, UniFi's architecture simplifies the deployment of based rollups to be nearly as easy as deploying smart contracts, greatly lowering the barriers to entry for developers and encouraging innovation.
Revenue gains: How Puffer's Based Rollups and pre-confirmations drive value for the Ethereum ecosystem.
All revenue sources will be converted into the earnings of the funding treasury, governed by the $PUFFER token.
Puffer's upgraded revenue model (note, it is not just an LRT) fully leverages based rollups and pre-confirmation technology to create sustainable value within the Ethereum ecosystem. Through based rollups, Puffer generates ordering fees, benefiting from mechanisms that allow Ethereum validators to manage transaction ordering. UniFi not only supports seamless interoperability between Ethereum L1 and L2 but also between L2s, achieving the unification of liquidity and composability. By integrating ordering fees into the Ethereum validator network, Puffer captures transaction-based revenue while reinforcing the value of Ethereum's native economy.
Users can also pay pre-confirmation tips to prioritize their transactions. This provides Puffer with an additional revenue stream, forming a diversified income alongside transaction inclusion fees. These fees and tips will be reinvested into Puffer's ecosystem, further enriching the value of its native tokens pufETH and unifiETH while providing additional yields to token holders.
As explained by Puffer's core contributor Amir:
"If every user pays an additional fee for these pre-confirmations to ensure faster and more reliable transactions on Ethereum, then AVS will be tightly linked to each user's transaction on Ethereum. This builds a very powerful, efficient revenue-generating AVS that can reliably output organic yields."
About vePuffer
One of the key factors enabling the protocol to achieve sustainable long-term price growth is tokenomics. An excellent protocol must have a well-designed token model focused on creating value for long-term holders. At Mechanism Capital, we focus on token economics design, supporting teams that can innovate and maximize token value capture.
Puffer Finance is launching vePuffer as an update to its token economics. The goal is to transfer value to token holders and align incentive mechanisms throughout the ecosystem. To this end, they have introduced the following innovations:
Decentralized governance:
vePUFFER enables the community to participate in the distribution voting of PUFFER points, aligning with Puffer's decentralization goals.
Tradable points:
ERC20 PUFFER points in the second quarter support trading, allowing users to gain early yields or make additional purchases, thus increasing flexibility and arbitrage potential.
Flexible strategies:
Tradable points allow users to decide to hold, sell, or purchase based on personal strategies and market sentiment, enhancing risk management capabilities.
Bribery market:
The protocol can incentivize vePUFFER holders to increase the voting count in their pools, thereby enhancing APR and liquidity.
Competitive protocols:
The bribery mechanism allows the protocol to attract votes to enhance APR, promote user participation, and create consistent incentive mechanisms.
Community-driven reward mechanism:
The vePUFFER model supports governance, speculation, and diversification strategies, empowering users to shape the incentive mechanisms of the ecosystem.
Why Puffer's UniFi is unique: Redefining the Rollup landscape of Ethereum
By launching UniFi, Puffer creates an opportunity for Ethereum to transition from a fragmented Rollup environment to a unified, positive-sum ecosystem. This ecosystem brings together developers, users, and liquidity in unprecedented ways. The ultimate result? A stronger, more resilient Ethereum capable of meeting the needs of billions of users.
Disclaimer: The contents of this article do not constitute any investment advice.
