Author: Roland Roventa
Translation: Plain Language Blockchain
Trump's recent victory has sparked a DeFi revival, placing Ethereum in a favorable position, holding 63% of the global DeFi TVL, thus able to capitalize on this momentum. Ethereum may have found the long-awaited catalyst, positioning itself to benefit from the regime change. Since the announcement of the U.S. presidential election results, the Ethereum ecosystem has consistently outperformed expectations.
However, while Ethereum's Rollup-centric roadmap is crucial for scalability, it also presents a significant challenge: fragmentation. The current Rollup ecosystem operates in an environment where the champions take the majority, dispersing liquidity, attention, and users across isolated L2s. To fully leverage this resurgence of interest in DeFi, Ethereum must address these divisive dynamics to create a more unified and accessible network.
1) Bridging Divides: Addressing Ethereum's Fragmentation and Liquidity Challenges
Puffer Finance's innovative solution UniFi directly addresses Ethereum's fragmentation challenge. We believe that once the market sees it as an innovative new infrastructure solution, rather than just another Liquid Restaking Token (LRT), Puffer will shine.
What was Puffer originally? Initially, Puffer was a leading LRT protocol focused on providing decentralized staking solutions.
What is the current Puffer? Puffer has evolved into a unified Ethereum-centric solution.
Puffer has evolved from the first local Liquid Restaking Protocol into a comprehensive Ethereum-integrated scaling ecosystem, consisting of the three main components discussed in this article.
1) Decentralized Liquid Restaking Token (LRT)
Puffer's flagship anti-slashing LRT offers enhanced yield and security, supporting decentralized staking within the Ethereum ecosystem.
2) UniFi-based Rollup Stack
A Layer 2-based sorting solution that enables seamless interoperability for L2<L2 and L2<L1 transactions, providing efficient atomic composability for cross-chain interactions.
3) UniFi Preconf AVS
The industry's first pre-confirmation AVS, providing near-instant transaction finality for L1 and L2, significantly enhancing the speed and reliability of the Ethereum network.
Puffer Finance's UniFi-based Rollup Stack transforms Ethereum's fragmentation into a positively-sum ecosystem.
2) What is the UniFi-based Rollup Stack? How does it work?
1) What is L1-based Roll-up?
L1-based Roll-up is an advanced scaling method that directly integrates Ethereum's shared sequencer, avoiding reliance on centralized sequencers (which is common practice in other optimistic and zero-knowledge L2s). This concept was first introduced in a research paper by Justin Drake in March 2023, who defined it as follows:
"When the ordering of Roll-ups is driven by the underlying L1, we refer to it as L1-based or L1-ordered Roll-up. More specifically, an L1-based Roll-up refers to the next L1 block producer being able to collaborate with L1 seekers and builders to include the next Roll-up block as part of the next L1 block without permission." - Justin Drake
For non-technical individuals, this statement may be hard to grasp. In simple terms, L1-based Roll-up is a highly efficient solution that validates transactions directly on L1, fully leveraging the existing mechanisms of Ethereum. In contrast, other mainstream Roll-up solutions (like optimistic and zero-knowledge) require transactions to be verified on L2 before being sent to L1.
The following advantages can be achieved through L1 sorting (performed by Ethereum validators):
Inheriting the vitality and decentralized characteristics of the Ethereum network ensures reliability without relying on single points of failure.
The infrastructure is simpler because there is no need to run a dedicated sequencer.
Execution is faster, thanks to the pre-confirmation mechanism, achieving quicker transaction finality (which will be discussed in detail later).
Aligning economically with L1 creates new revenue opportunities for existing validators through non-extractive MEV (maximum extractable value).
Lower operational costs as transaction sorting is handled by L1.
The main disadvantage is that L1-based Roll-ups will cede MEV revenue to L1, with their own revenue limited to base transaction fees.
2) L1-based Rollup is superior to optimistic Rollup
In summary:
By optimizing transaction ordering processes at the base layer, costs can be reduced, speeds improved, while maintaining the inherent security and decentralization of the Ethereum network.
3) Puffer is an L1-based solution
UniFi is an Ethereum-based Roll-up that allows the creation of application chains (App Chains) through its technology stack.
They address Ethereum's liquidity fragmentation issues by achieving synchronous composability. Transactions on UniFi can interact directly with other L1-based Roll-ups without the need for cross-chain bridges, creating unified liquidity and application layers. Developers can easily launch their application chains, capture transaction fees, and leverage shared liquidity.
Their goal is to bring atomic composability to Ethereum, redefining what can be achieved on-chain. Through atomic composability, UniFi will allow L1 and L2 to achieve smooth and integrated interactions within a single Ethereum block. Imagine a user or protocol depositing assets into UniFi from L1, performing complex operations on-chain (like trading or yield farming), and then withdrawing back to L1 within the same 12-second Ethereum block. This is not only incredibly fast, but it also represents a significant advancement in blockchain interoperability.
Puffer does not compete against L1 but rather expands L1's capabilities in an integrated manner.
1) How does it work?
Inspired by collaborative research with Justin Drake, Puffer UniFi utilizes trusted execution environments (TEEs) in its processing stack. To achieve real-time proofs, Puffer uses TEEs as early "training wheels." Real-time proofs can enhance interoperability. When zero-knowledge provers become fast enough, provers can evolve from relying on trusted hardware to fully zero-knowledge-based solutions.
2) Puffer Architecture Analysis
3) Architecture Overview
Puffer's UniFi Preconf AVS provides users with L2 execution confirmation, allowing users to experience sub-second transaction speeds when interacting with UniFi. In UniFi's universal Rollup, local yield tokens can be used as Gas tokens.
The consensus layer, data availability layer, and settlement layer are all components of the underlying Layer 1 (in this case, Ethereum). Meanwhile, Rollup is only responsible for the execution layer.
This is exactly what makes Puffer's application chain unique.
4) Why is this important?
Puffer has built its own application chain through L1-based Rollup, enabling seamless integration of EVM protocols. This provides an opportunity for every participant in the ecosystem, from individual validators to large-scale decentralized applications (dApps), to participate and benefit, thus driving a faster, more efficient, and more decentralized Ethereum development. The fragmentation issue of Ethereum has persisted for too long; now is the time for change.
5) Ecosystem Overview:
6) Growth Phase
Growth will occur in phases:
Phase one: They will introduce L1-based Rollup to users and developers. Protocols not yet ready to run their application chains can be directly deployed on UniFi.
Phase two: The UniFi SDK will launch, enabling any dApp developer to create their application chain in a more streamlined manner.
4) UniFi Preconf AVS
UniFi provides near-instant execution confirmation through "pre-confirmation" (Preconf). This is not just a speed enhancement; it is a whole new way of scaling Ethereum. Pre-confirmation is a solution to Ethereum's fragmentation issue and provides ultra-fast confirmations.
1) How is it achieved?
Due to Ethereum's 12-second block time limiting fast transaction finality, pre-confirmation (Preconf) becomes key to enhancing user experience. To this end, Puffer has developed a proprietary Preconf AVS that can provide instant confirmation that a transaction will be included in the next block in about 100 milliseconds. This greatly enhances the speed and reliability of the L1 Rollup ecosystem.
2) How It Works
Pre-confirmation is divided into two types: execution pre-confirmation and inclusion pre-confirmation. Both can be used to provide faster confirmations for L1 or L2 users. The advantage of execution pre-confirmation is that it can provide users with final and guaranteed commitments, including confirmation of the state at the time of transaction execution. For example, it can confirm the execution price of a transaction, thus enhancing the user experience.
Implementing execution pre-confirmation on L1 is more complex, but L2's execution pre-confirmation can address this issue well. Puffer's UniFi AVS leverages this feature to significantly enhance user experience.
Pre-confirmation requires reliable guarantees. Since pre-confirmation is a commitment made by the proposer (validator or delegate proposer), failure to deliver will result in penalties, such as slashing. Re-staking protocols like EigenLayer play a key role in providing slashing guarantees for pre-confirmation. Notably, Puffer's UniFi Preconf AVS is the first of its kind to run on EigenLayer.
3) UniFi: The Catalyst for a Unified Ethereum Ecosystem
UniFi's synchronous composability is disruptive. Cross-Rollup interactions can occur as if on a single chain, eliminating the need for L2 bridges (no one likes using bridges), reducing costs, and alleviating security risks associated with asset transfers. UniFi's approach unifies liquidity, enabling developers and users to interact seamlessly across chains, significantly enhancing the user experience on Ethereum.
For developers, UniFi provides a unique opportunity to scale applications in a unified, low-friction environment. By eliminating the need for centralized sorting, UniFi significantly reduces operational costs, allowing developers to focus on products without worrying about managing the complexities of isolated L2s. The setup of UniFi makes launching an L1-based Rollup nearly as simple as deploying a smart contract, greatly lowering the barrier to entry for developers and encouraging innovation.
4) Unlocking Revenue: How Puffer's Rollup and Pre-confirmation Create Value for the Ethereum Ecosystem
All revenue streams will generate treasury rewards and be governed by the $PUFFER Token.
Puffer's upgraded revenue model (not just LRT) creates sustainable value within the Ethereum ecosystem through Rollup and pre-confirmation. By using Rollup, Puffer generates sorting fees by allowing Ethereum validators to manage transaction ordering. This method supports seamless interoperability between Ethereum L1 and L2, as well as between L2s, creating unified liquidity and composability. By incorporating sorting fees integrated with Ethereum's validator network, Puffer captures transaction-based revenue while enhancing Ethereum's native economic value.
Users can prioritize their transactions by paying a pre-confirmation tip, providing Puffer with an additional revenue source beyond transaction inclusion fees. These fees and tips are funneled back into the Puffer ecosystem, enriching its native tokens pufETH and unifiETH, and providing yields for token holders.
As Puffer contributor Amir explained:
"If every user pays an extra fee for pre-confirmation to ensure faster and more reliable transactions on Ethereum, then the AVS is tied to every transaction a user makes on Ethereum. This creates a very powerful revenue-generating AVS that can continuously provide organic yields without the need for additional tokens or secondary mechanisms."
5) Launch vePuffer
The key to a protocol achieving sustainable long-term price performance lies in its tokenomics design. An excellent protocol must have a well-thought-out token model focused on providing value to long-term holders. Mechanism Capital focuses on tokenomics design, supporting teams that innovate and maximize their token value capture.
Puffer Finance launched vePuffer as an update to its tokenomics, aiming to transfer value to holders and align incentives across the ecosystem.
Key features include:
Decentralized governance: Through vePUFFER, the community can vote on PUFFER point allocations, aligning with Puffer's decentralization goals.
Tradable points: ERC20 PUFFER points from the second quarter are tradable, providing flexibility for early profits or additional purchases.
Flexible strategies: tradable points enable users to choose to hold, sell, or buy based on individual strategies and market sentiment, enhancing risk management.
Bribery market: protocols can incentivize vePUFFER holders to vote for their liquidity pools, thereby increasing annual percentage yield (APR) and liquidity.
Competitive protocols: bribery systems allow protocols to attract votes to increase APR, driving participation and aligning incentives.
Community-driven rewards: the vePUFFER model promotes governance, speculation, and diversified strategies, empowering users to shape ecosystem incentives.
6) How Puffer's UniFi Stands Out: Innovating the Ethereum Rollup Ecosystem
With the launch of UniFi, Puffer creates an opportunity for Ethereum to transition from a fragmented Rollup environment to a unified positive-sum ecosystem, connecting developers, users, and liquidity in unprecedented ways. The result is a stronger, more resilient Ethereum capable of meeting the needs of billions.
