Author IOSG Ventures
Introduction
For years, Uniswap has been continuously pushing reforms of functionality and innovation to make exchanges more user-friendly and fair. For example, we have seen Uniswap Mobile, the Fillers Network in UniswapX, the ERC-7682 for unified cross-chain intent standards, and the hooks that will open for custom AMM pools in Uniswap V4, among others.
On October 10, Uniswap announced their overall optimistic Rollup, Unichain. This chain aims to be a one-stop liquidity center in the superchain ecosystem, providing traders with near-instant exchange experiences and lower spreads, while maximizing the privacy and integrity of MEV participants in the process, using TEE. While these visions are impressive, users question the need for another L2, with some, including Vitalik, commenting that Unichain is just 'a copy of Uniswap on every Rollup.' In other words, he believes that launching a Uniswap clone on a new chain serves the same purpose as launching Unichain itself. So, is Unichain a positive or negative development? Today's article will explore the architecture of Unichain and understand its 'necessity'.
1. What is Unichain? Unichain is an optimistic rollup designed to execute near-instant transactions while using privacy technology TEE to minimize potential impacts on on-chain LPs and traders. Since Unichain is built with the same properties and standards as other optimistic rollup chains, it can now leverage interoperability within the superchain ecosystem and access shared liquidity across the entire network. To this end, Unichain brings four major innovations: • Rollup-Boost and Sequencer Builder Separation • Block Building in TEE • Flashblock • Unichain Verification Network (UVN)
1.1 Rollup Boost: Sequencer Proposer Separation (SBS) Block Building is key to solving the MEV problem. Before MEV Boost, Ethereum was plagued by censorship risks and poor user experiences. Users faced high transaction fees and front-running issues due to intense competition among seekers for profit-driven order inclusion. To address these issues, flashbots built MEV-boost. MEV Boost aggregates the roles of block builders and proposers by introducing relayers that submit the most profitable blocks to proposers for signing, thereby separating the roles of block builders and proposers. This design effectively decentralizes the MEV extraction process and democratizes MEV profits between validators and professional builders.
The concept of Rollup Boost is similar to MEV Boost, where L2 enabled with SBS can separate the block building process from the sequencer's execution engine through a system called 'Block Builder Sidecar'. In short, the system consists of four main components: • OP-node • OP-geth • Sidecar / Blockbuilder Sidecar • External block builder Below is the optimism architectural diagram, where we can see the sequencer node (also known as op-chain) consisting of Op-geth and Op-node.
To distinguish the roles of block building and proposing in the sequencer, a component called Sidecar has been added. Sidecar allows OP nodes to receive blocks from external builders, thus creating a market between block builders and proposers. The workflow is as follows: 1. OP nodes send updates to the sidecar. 2. The sidecar acts as an intermediary to forward updates to op-geth. 3. When the OP node requests a block from OP-geth, the sidecar intercepts the request. 4. The sidecar then forwards the request to external block builders, creating a 'gap' where external builders can bid and compete. 5. Upon receiving the external/winning block, the sidecar sends it to the OP node. 6. If no block is received, the sidecar will forward the locally generated block. The main benefit of the block builder sidecar is that upgrades do not require modifications to the OP chain client while allowing for more flexible, streamlined, and scrutinized transaction ordering rules. However, the introduction of an intermediary (sidecar) may introduce some latency.
1.2 Rollup Boost: Sequencer Proposer Separation (SBS) Rollup Boost takes it a step further by introducing Trusted Execution Environments (TEE) into the block building process to ensure transaction integrity. Thanks to recent hardware advancements like Intel TDX, real-time performance becomes possible. For those unfamiliar with TEE, they are secure areas within processors or hardware that provide enhanced privacy by preventing unauthorized entities from reading external data. At the same time, TEE maintains a high level of integrity, as code within the TEE cannot be modified or replaced.
In the context of Rollup Boost, Unichain will use TEE builders to reduce the risk of MEV leakage. This means that when bundles or transactions are sent to the TEE block builder, the integrity aspects of TEE guarantee that the order of transactions reaching the builder will not be influenced by external parties attempting to extract more MEV.
Additionally, TEE provides trustless rollback protection that can protect users from failed transactions, as TEE can run simulations and detect and eliminate issues before handling any rollback transactions. This not only improves the efficiency of AMM (Automated Market Maker) as failed transactions will not pass through, but also enhances the overall user experience, especially during high transaction volumes.
To increase transparency in transaction ordering and block building processes, execution proofs will be made public to users after block generation. This proof is crucial for verifying the priority ordering, a concept that will be explained in the following sections.
1.3 Flashblock and Verifiable Block Building The average block time on Ethereum is 12 seconds, which is very slow and does not meet today's demands for acceptable transaction experiences. Additionally, slow block times expose the network to more MEV opportunities and make it vulnerable to network congestion from junk trading attacks. L2 aims to improve Ethereum's scalability by bundling off-chain transactions and submitting proofs to verify computational correctness. To provide a smoother transaction experience, Unichain aims for a block time of 250ms. However, to achieve this, Unichain requires a system capable of continuously transmitting blocks with low latency and near-instant confirmation times. Solana can handle 440M transactions in parallel, but achieving such speed sacrifices a degree of decentralization. Previously, in most L2 block proposal processes, serialization of data and generation of state roots would cause delays, making rapid block times unfeasible. To address this issue, flashbots created flashblock, which is based on the idea of 'breaking' blocks into smaller shards to shorten the time between blocks and maximize UX/LP advantages.
Flashblock is a pre-confirmation issued by TEE block builders for partial but rapid confirmation. First, transactions are streamed into the TEE block builder. If L2 enables SBS, the block builder will be separated from the sequencer. After sorting and bundling, transactions will gradually form into partial confirmations that become Flashblock. Flashblock will broadcast from the sequencer every 250 milliseconds to other nodes for verification. Since the delay is caused by state root generation and serialization within L2, Unichain significantly reduces latency by calculating the state root and amortizing the costs of block building only once for multiple partial blocks. In short, the power of Flashblock lies in: • Shorter block times reduce the adverse selection cost risks for LPs. • Flashblock provides early execution states of the current status, making wallet and front-end integration easier. • Fast transactions provide an excellent user experience (UX). Furthermore, since TEE can enforce priority ordering within each Flashblock, applications and smart contracts can now impose MEV taxes for prioritization for self-interest and redistribute MEV to LPs and users. As Dan Robinson emphasized in one of his tweets, allowing applications and users to 'control' their MEV is one of the key functionalities/purposes of Unichain. The better point is that priority ordering can be verified through publicly executed proofs in TEE. This allows users to accurately verify how their transactions were executed. This is crucial, as it is the only way for users to ensure that priority ordering is conducted fairly.
1.4 Unichain Verification Network (UVN) Today, most L2 sequencers are centralized, and the behavior of a single sequencer can affect MEV fairness, block activity, or finality. For example, if a sequencer publishes an invalid block and a fraud proof is submitted to challenge it, the resulting chain rollback can actually impact the speed of the chain. To address potential single points of failure in sequencers, Unichain introduces the Unichain Verification Network (UVN). UVN adds an additional layer of finality by focusing on validating blocks through verifiers that adhere to the proof standards of the underlying chain (Ethereum) when proposing blocks. This process is akin to parallel jobs, where different stages of block construction can occur simultaneously within a period. However, with no further documentation, it would be premature to speculate on this.
1.5 $UNI Token The $UNI token is no longer just a governance token; it is now a utility token. To become a verifier, operators must first stake $UNI as collateral on the mainnet. Smart contracts will track balances and update states via Unichain's native bridge. At the start of each period, the current staked balance will be snapshot, and fees will be allocated proportionally based on staking weight. Validators with the highest $UNI staking weight will be selected as active validators, who can publish proofs to earn a share of the verification rewards. Validators who miss or fail to publish proofs will not receive rewards, and the rewards will carry over to the next period. Based on limited public information, we can infer that the verification rewards will be: (L2 fees paid by Unichain users - MEV taxes imposed by applications - costs of submitting bundles to Layer 1)
2. Unichain vs Appchain vs General Rollup
The main differentiating factors between Unichain/general Rollup and application chains are MEV, pre-confirmation, and block space competition.
Since application chains can flexibly customize their architecture, they can implement different MEV mechanisms to mitigate issues such as eliminating censorship risks or reducing MEV leakage.
Moreover, due to the integrity properties provided by TEE, Unichain mitigates and restructures MEV by ensuring that the transaction order is not influenced by any third parties. Verifiable priority ordering also ensures MEV fairness and has the potential to redistribute MEV revenue to users and liquidity providers.
Most sequencers on the market are centralized, allowing them to extract maximum value from order flow. In contrast, Unichain takes a more 'public interest' approach, as its MEV redistribution mechanism somewhat limits the amount of MEV that the original sequencer can capture.
Unichain is built on OpStack, the unified standard for optimistic chains, which allows Unichain to read messages and transfer assets across the superchain through secure messaging, achieving low latency (around 2 seconds) through its native optimistic interoperability design. On the other hand, application chains can leverage different interoperability solutions, such as joining the IBC ecosystem or building L3 on Arbitrum Orbit (although this is not common for L2 of OpStack).
3. Conclusion Unichain is an interesting concept that not only offers users a pre-confirmed smooth trading experience but also minimizes the window for MEV exploitation due to the shorter block times enabled by flashblocks. This innovation also reduces the adverse selection risk for LPs and benefits users/LPs with lower slippage, among other advantages. On the other hand, the integrity and privacy properties of Trusted Execution Environments (TEE) ensure that users on the chain enjoy guaranteed transactions for fair, verifiable, or application-managed MEV redistribution, thanks to the priority ordering on Unichain. The verification process of Unichain also protects sequencers from single points of failure, with validators playing a crucial role in quickly finalizing verified blocks while transforming the $UNI token into a productive asset with yields. However, by enabling MEV redistribution, sequencers effectively lose the potential to capture the maximum amount of MEV, but more yields are returned to LPs/users on the chain. While some may argue that Unichain may not have enough appeal to attract assets to migrate to the new chain, I believe that as the L2 ecosystem continues to evolve, interoperability between operation chains will allow Unichain to tap into larger liquidity pools, such as those from Base. Additionally, beyond Grants (which Unichain can also provide in USDC after Uniswap DAO), new DeFi Apps have enough motivation to build on Unichain as they can benefit from customized MEV redistribution strategies. Meanwhile, assets within the ecosystem can benefit from TEE to mitigate MEV leakage. Thus, with its speed, fairness of MEV redistribution, and cross-chain interoperability, Unichain has the potential to become the next center of DeFi.
