Article source: Puffer Finance
Author: Roland Roventa
Trump's victory sparked a revival wave in DeFi, allowing Ethereum (which accounts for 63% of the total locked value in DeFi globally) to potentially break through with this momentum. Since the announcement of the U.S. presidential election results, the Ethereum ecosystem has consistently outperformed expectations.
However, despite being crucial for scalability, Ethereum's rollup-based scaling route faces a significant challenge: fragmentation. The current rollup ecosystem is in a winner-takes-all state, leading to liquidity, user attention, and user bases scattered across isolated L2 chains. To fully tap into the potential of DeFi's resurgence, Ethereum must address these fragmentation dynamics and build a more unified and open network.
Bridging the Gap: Addressing Ethereum's Fragmentation and Liquidity Challenges
Puffer Finance's innovative solution – UniFi, directly faces the fragmentation challenges of Ethereum. We believe that once the market realizes Puffer is not just another liquidity-restaking 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 a unified solution centered around Ethereum. Puffer has transformed from the first native liquidity-restaking protocol into a comprehensive Ethereum-integrated scaling ecosystem, composed of the following three core components:
1. Decentralized Liquidity Re-staking Protocol (LRT)
Puffer’s flagship product, featuring anti-slashing characteristics, providing high yield and security, supporting decentralized re-staking within the Ethereum ecosystem.
2. UniFi Based Rollup Stack
A serialization solution based on L2 that enables seamless interaction between L2><L2 and L2><L1, supporting efficient atomic composability for cross-chain operations.
3. UniFi Preconfirmation AVS
The industry's first preconfirmation AVS provides near-instant transaction finality for L1 and L2 transactions, greatly 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, without relying on centralized orderers commonly used in other L2s (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, which is L1-ordered rollup, refers to its ordering being driven by the underlying L1. Specifically, based rollup means that the next L1 proposer can collaborate with L1 seekers and builders to include the next rollup block in the next L1 block without permission." - Justin Drake
For non-technical individuals, the above description may seem complex. In simple terms, chain-based aggregation directly verifies transactions on L1, fully utilizing the efficiency of Ethereum's existing mechanisms. In contrast, other common aggregation solutions (like optimistic & ZK) typically validate transactions on L2 first and then submit them to L1.
By utilizing based ordering (using Ethereum L1 validators for ordering), the following advantages can be obtained:
● Inherits the activity and decentralization characteristics of the Ethereum network: Ensures reliability, unaffected by single points of failure.
● Simplified infrastructure: No need to run independent orderers.
● Faster execution speed: Achieve faster transaction finality through preconfirmation (details to follow).
● Aligns economic interests with L1: Creates new revenue opportunities for existing validators through non-intrusive 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 Decentralized L1 Validators
Centralized Orderers
Confirmation Time
With preconfirmation mechanisms, nearly instant confirmations (within 100 milliseconds)
Longer, due to delays from fraud proofs
Security Model
Inherits the security and decentralization of Ethereum L1
Assumed Validity; Reliance on Fraud Proofs
Interoperability
Synchronous Composability across L1 and Rollup
Limited, usually asynchronous due to verification
Composability
Liquidity unification between L1 and Rollup
Liquidity fragmentation between Rollups
User Experience
Seamless experience, leveraging preconfirmation to enhance speed
Slower, affected by fraud proof verification
By optimizing the underlying transaction ordering process, costs can be reduced, speed can be increased, while retaining the inherent security and decentralization features of the Ethereum network.
Puffer is Based
Puffer UniFi is an Ethereum-based based rollup that enables the creation of app chains through its tech stack.
It addresses the liquidity fragmentation issue in Ethereum by achieving synchronous composability. Transactions on UniFi can interact directly with other based rollups without the need for bridging, creating unified liquidity and application layers. Developers can easily launch their own app 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, perform complex operations (like swaps or liquidity mining), and then withdraw assets back to L1 within the same 12-second Ethereum block. This is not only fast, but also a significant breakthrough in blockchain interoperability.
Puffer does not compete with L1 but collaborates with L1 to expand its capabilities in an integrated manner.
How does it work?
Inspired by research in collaboration with Justin Drake, Puffer UniFi adopts Trusted Execution Environments (TEEs) in its processing stack. To achieve real-time proofs, Puffer plans to use TEEs as a temporary auxiliary tool. The implementation of real-time proofs can significantly enhance interoperability. Once zero-knowledge proof (ZK proofs) technology reaches sufficient speed, provers will be able to shift from relying on trusted hardware to entirely zero-knowledge-based solutions.
Architecture Analysis of Puffer UniFi
Architecture Overview - Puffer's UniFi preconfirmation AVS provides users with L2 execution confirmation services. When users interact through UniFi, they experience sub-second transaction speeds. In the UniFi universal Rollup, native yield tokens can be used as fuel (Gas) tokens.
The consensus layer, data availability layer, and settlement layer are handled by the underlying layer (Layer 1, i.e., Ethereum). The Rollup focuses on the functionality of the execution layer.
This is precisely what makes the Puffer app-chain unique.
Why is this important?
Puffer is building its own app-chain using based rollups for seamless integration with EVM protocols. This offers opportunities for participation and profit for everyone in the ecosystem, whether individual validators or large dApps, benefiting from a faster, more efficient, and decentralized Ethereum. The fragmentation issue within Ethereum has persisted for too long, and it's time to change this status quo.
Ecosystem Overview
Growth will be phased:
Phase 1: Puffer will introduce based rollups to users and developers. For protocols that are not yet ready to run their own app chains, they can be deployed directly on UniFi.
Phase 2: UniFi will launch an SDK to enable any dApp developer to quickly build and deploy their own app chains in a simplified manner.
UniFi Preconfirmation AVS
UniFi provides near-instant execution confirmation through preconfirmation technology. This is not just an improvement in speed but a brand new scalability solution for Ethereum. Preconfirmation technology addresses Ethereum's fragmentation problem while providing extremely fast transaction confirmations.
How to achieve this? Due to Ethereum's 12-second block time limiting the finality of fast transactions, preconfirmation has become crucial for enhancing user experience. To address this, Puffer has developed a proprietary preconfirmation AVS technology that provides near-instant (approximately 100 milliseconds) transaction confirmation guarantees, ensuring transactions will be included in the next block. This innovation significantly enhances the speed and reliability of the based rollup ecosystem.
If operational?
Preconfirmations (preconfs) are divided into two types: Execution Preconfirmation and Inclusion Preconfirmation. Both can be used to provide users with faster transaction confirmations on L1 or L2: the advantage of execution preconfirmation is that it provides users with final and guaranteed commitments, including confirmations of the state after transaction execution. For example, it can confirm the price at which a transaction is executed, significantly enhancing the user experience.
Achieving execution preconfirmation for L1 presents certain challenges; however, L2’s execution preconfirmation effectively addresses this issue. Puffer UniFi AVS leverages this capability to provide a more optimized user experience.
Preconfirmation Guarantee Mechanism: Preconfirmations represent the proposer's (validator or authorized proposer) commitment to the user. If this commitment cannot be fulfilled, penalties should be imposed, such as slashing. Re-staking protocols like EigenLayer play an important role in providing slashing guarantees for preconfirmations. Notably, Puffer UniFi's preconfirmation AVS is the first of its kind running on EigenLayer.
Puffer UniFi: A Catalyst for the Next Chapter of Ethereum – Unification
UniFi's synchronous composability is a disruptive innovation. Interactions across Rollups operate as if on a unified chain, without the need for L2 bridges (which are unpopular), thereby reducing costs and alleviating security risks associated with asset transfers. UniFi's approach achieves the unification of liquidity, enabling developers and users to interact seamlessly between chains, significantly enhancing Ethereum's liquidity and user experience.
Implications for Developers: UniFi provides developers with 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. Additionally, the architecture of UniFi makes deploying a based rollup nearly as simple as deploying a smart contract, greatly lowering the entry barrier for developers and encouraging innovation.
Income Gains: How Puffer's Based Rollups and Preconfirmations Drive Value in the Ethereum Ecosystem
All income sources will convert into the revenue of the funds reserve, governed by the $PUFFER token.
Puffer's upgraded income model (note: not just an LRT) fully leverages based rollups and preconfirmation technology to create sustainable value within the Ethereum ecosystem. Through based rollups, Puffer generates ordering fees, benefiting from the mechanism that allows Ethereum validators to manage transaction ordering. UniFi not only supports seamless interoperability between Ethereum L1 and L2 but also between L2s, thus 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 preconfirmation tips to prioritize their transactions. This provides an additional source of revenue for Puffer, 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 extra returns for token holders.
As explained by Puffer core contributor Amir:
"If each user pays an additional fee for these preconfirmations to ensure faster and more reliable transactions on Ethereum, then the AVS will be closely tied to each user's transaction on Ethereum. This builds a very powerful efficient revenue-generating AVS capable of stably outputting organic returns."
About vePuffer
One of the key factors for achieving sustainable long-term price growth for the protocol is tokenomics. A successful protocol must have a well-designed token model, focusing on creating value for long-term holders. At Mechanism Capital, we focus on tokenomics design, supporting teams that can innovate and maximize token value capture.
Puffer Finance is launching vePuffer as an update to its tokenomics. Its goal is to convey 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 support trading in Q2, allowing users to earn early returns or make additional purchases through trading, thus increasing flexibility and arbitrage potential.
Flexible Strategies:
Tradable points enable users to decide whether to hold, sell, or purchase based on personal strategies and market sentiment, enhancing risk management capabilities.
Bribery Market:
Protocols can incentivize vePUFFER holders to increase their pool's voting quantity, thereby enhancing APR and liquidity.
Competitive Protocols:
Bribery mechanisms allow protocols to attract votes to enhance APR, promoting user participation and creating consistent incentive mechanisms.
Community-driven reward mechanism:
The vePUFFER model supports governance, speculation, and diverse strategies, empowering users to shape the incentive mechanisms of the ecosystem.
Why Puffer's UniFi Stands Out: Reshaping Ethereum's Rollup Landscape
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 content of this article does not constitute any investment advice.
