Author: Roland Roventa
Trump's victory has sparked a resurgence in DeFi, positioning Ethereum (which accounts for 63% of the total locked value in global DeFi) to potentially break through with this momentum. Since the results of the U.S. presidential election were announced, the Ethereum ecosystem has consistently outperformed expectations.
However, while Ethereum's rollup-based scaling path is crucial for scalability, it faces a significant challenge: fragmentation. The current rollup ecosystem is in a winner-takes-all state, resulting in liquidity, user attention, and user bases being scattered across isolated L2 chains. To fully unlock the potential of DeFi's resurgence, Ethereum must address these fragmentation dynamics, resolving its current fragmentation issues and building a more unified and open network.
Bridging the Gap: Addressing Ethereum's fragmentation and liquidity challenges
Puffer Finance's innovative solution – UniFi, directly addresses Ethereum's fragmentation challenges. 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 initially was a leading LRT protocol focused on providing decentralized staking solutions.
Puffer's Present: Puffer has now evolved into a unified solution centered on Ethereum. 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:
Decentralized Liquidity Re-staking Protocol (LRT)
Puffer's flagship product, features slashing protection, provides high yields and security, supporting decentralized re-staking within the Ethereum ecosystem.
UniFi Based Rollup Stack
A L2 based serialization solution that enables seamless interaction between L2>L2 and L2>L1, supporting efficient atomic composability for cross-chain operations.
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.
Part One: 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 sorters, without relying on centralized sorters commonly used in other L2s (such as optimistic or zero-knowledge proof L2). The core idea was first proposed by Justin Drake in a research paper in March 2023:
"Based rollup, that is, rollup sorted by L1, refers to one whose sorting is driven by the base L1. Specifically, based rollup means that the next L1 proposer can work with L1 searchers 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. Simply put, rollups based on the main chain validate transactions directly 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 first before submitting them to L1.
The following advantages can be gained through based sorting (utilizing Ethereum L1 validators for sorting):
Inheriting the activity and decentralization characteristics of the Ethereum network: ensuring reliability, free from single points of failure.
Infrastructure is simplified: no need to run independent sorters.
Faster Execution Speed: Achieving faster transaction finality through pre-confirmations (which will be detailed later).
Aligning Economic Interests with L1: Creating new revenue opportunities for existing validators through non-invasive MEV (Maximum Extractable Value).
Reducing Operating Costs: Since transaction sorting is handled by L1.
Based Rollups > Optimistic Rollups
By optimizing the underlying transaction sorting process, costs can be reduced, speed improved, while retaining the inherent security and decentralization of the Ethereum network.
Puffer is Based
Puffer UniFi is a based rollup built on Ethereum that enables the creation of application chains through its tech stack.
It addresses Ethereum's liquidity fragmentation issue by implementing synchronous composability. Transactions on UniFi can interact directly with other based rollups without bridging, creating unified liquidity and an application layer. 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 also a significant breakthrough in blockchain interoperability.
Puffer is not competing with L1, but rather collaborating with L1 to extend its functionality in an integrated manner.
How does it work?
Inspired by collaborative research with Justin Drake, Puffer UniFi adopts Trusted Execution Environments (TEEs) in its processing stack. To achieve real-time proof, Puffer plans to use TEEs as a temporary auxiliary tool. The implementation of real-time proof can significantly enhance interoperability. Once zero-knowledge proof (ZK proof) technology reaches sufficient speed, proofers will be able to shift from relying on trusted hardware to fully zero-knowledge-based solutions.
Puffer UniFi's Architecture Analysis
Architecture Overview - Puffer's UniFi Pre-confirmation AVS provides users with L2 execution confirmation services. 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.
The consensus layer, data availability layer, and settlement layer are all handled by the base layer (Layer 1, i.e., Ethereum). Rollups focus on the functionality of the execution layer.
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) using based rollups to achieve seamless integration with EVM protocols. This provides everyone in the ecosystem, whether individual validators or large dApps, with opportunities to participate and benefit from a faster, more efficient, and decentralized Ethereum. The fragmentation problem of Ethereum has existed for too long; it's time to change this status quo.
Ecosystem Overview
Growth will occur in phases:
Phase One: Puffer will introduce based rollups to users and developers. For protocols not yet ready to run their application chains, they can directly deploy onto UniFi.
Phase Two: UniFi will launch an SDK, enabling any dApp developer to quickly build and deploy their application chains in a simplified manner.
Part Two: UniFi Pre-confirmation AVS
UniFi provides near-instant execution confirmations through pre-confirmation (preconf) technology. This is not just a speed enhancement but a new Ethereum scalability solution. The pre-confirmation technology addresses Ethereum's fragmentation issues while providing extremely fast transaction confirmations.
How to achieve this? Due to Ethereum's 12-second block time limiting the finality of fast transactions, pre-confirmation (preconf) becomes crucial for enhancing user experience. To address this, Puffer has developed a proprietary pre-confirmation AVS technology that offers near-instant (around 100 milliseconds) transaction confirmation guarantees, ensuring that transactions will be included in the next block. This innovation significantly enhances the speed and reliability of the based rollup ecosystem.
How does it work?
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 confirmation of the state after transaction execution. For example, it can confirm the price at which a transaction was executed, significantly improving user experience.
Achieving execution pre-confirmation on L1 poses certain challenges; however, L2's execution pre-confirmation effectively solves this problem. Puffer UniFi AVS leverages this capability to provide a more optimized user experience.
Pre-confirmation guarantee mechanism: Pre-confirmation represents a commitment from the proposer (validator or authorized proposer) to the user. If this commitment cannot be fulfilled, penalties such as slashing should be imposed. Re-staking protocols like EigenLayer play an important role in providing slashing guarantees for pre-confirmations. Notably, Puffer UniFi's pre-confirmation AVS is the first of its kind to operate on EigenLayer.
Puffer UniFi: The Catalyst for Ethereum's Next Chapter – Unification
UniFi's synchronous composability is a disruptive innovation. Cross-Rollup interactions operate as if on a unified chain, without the need to use L2 bridges (which everyone dislikes), thus reducing costs and mitigating security risks associated with asset transfers. UniFi's approach achieves liquidity unification, enabling developers and users to interact seamlessly across chains, unprecedentedly enhancing Ethereum's liquidity and user experience.
Significance for Developers: UniFi provides developers with a unique opportunity to scale applications in a unified and low-friction environment. By eliminating centralized sorters, UniFi significantly reduces operational costs, allowing developers to focus on the product itself without worrying about the complexities of isolated L2 applications. Additionally, UniFi's architecture makes deploying a based rollup nearly as easy as deploying a smart contract, greatly lowering the barrier to entry for developers and encouraging innovation.
Income Gain: How Puffer's Based Rollups and pre-confirmations drive the value of the Ethereum ecosystem
All revenue sources will convert to the earnings of the funding reserve, governed by the $PUFFER token.
Puffer's upgraded revenue model (note that it is not just an LRT) fully utilizes based rollups and pre-confirmation technologies to create sustainable value within the Ethereum ecosystem. Through based rollups, Puffer generates sorting fees, thanks to a mechanism that allows Ethereum validators to manage transaction sorting. UniFi supports not only seamless interoperability between Ethereum L1 and L2, but also interoperability between L2s, achieving unification of liquidity and composability. By integrating sorting 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 source, forming a diversified income together with 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 earnings for token holders.
As Puffer core contributor Amir explains:
"If every user pays an extra fee for these pre-confirmations to ensure faster and more reliable transactions on Ethereum, then AVS will be closely tied to every transaction by users on Ethereum. This builds a very powerful, efficient revenue-generating AVS capable of providing stable 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 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 transfer value to token holders and align incentive mechanisms across the ecosystem. To achieve this, they are introducing the following innovations:
Decentralized Governance:
vePUFFER enables the community to participate in the voting allocation of PUFFER points, aligning with Puffer's decentralization goals.
Tradable Points:
The ERC20 PUFFER points in Q2 support transactions, allowing users to gain early profits or make additional purchases, thereby increasing flexibility and arbitrage potential.
Flexible Strategies:
Tradable points allow users to decide whether to hold, sell, or buy based on personal strategies and market sentiment, enhancing risk management capabilities.
Bribery Market:
Protocols can offer incentives to vePUFFER holders to increase their pool's voting power, thus enhancing APR and liquidity.
Competitive Protocols:
The bribery mechanism allows protocols to attract votes to enhance APR, promote user participation, and create consistent incentive mechanisms.
Community-driven reward mechanisms:
The vePUFFER model supports governance, speculation, and diversified 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 developers, users, and liquidity together in unprecedented ways. The end result? A more robust and resilient Ethereum capable of meeting the demands of billions of users.
Disclaimer: The content of this article does not constitute any investment advice.
