Unichain brings together the achievements of Uniswap, Flashbots and OP Stack.

Written by: 100y

Compiled by: Luffy, Foresight News

A few years ago, I speculated that Uniswap might develop its own network and was against it due to potential UX challenges. However, with the unveiling of Unichain, my prediction was proven wrong.

Unichain's whitepaper is only three pages long, but a closer look reveals that it is a masterpiece. It brings together Uniswap's long-standing focus on UX, Flashbots' latest MEV research, and the vast ecosystem built by OP Stack. Although short, the whitepaper touches on complex topics such as TEE (Trusted Execution Environment), prioritization, and MEV tax, which may be challenging for readers who are not familiar with the basics of MEV. Therefore, this article aims to quickly and simply introduce the main features of Unichain.

1. Problem

Uniswap is the leading AMM DEX in the Ethereum ecosystem, currently deployed in 25 networks with a total TVL of approximately $4.5 billion. Although Uniswap is already one of the most successful protocols, it still faces some limitations from the underlying network.

For example, the Ethereum network provides huge liquidity, but has low scalability and is vulnerable to malicious MEV (maximum extractable value) attacks. To solve these problems, various Rollup solutions have emerged, but most Rollups currently have a single sorter for transaction sorting, resulting in potential single points of failure, such as liveness failures and censorship.

In addition, the block construction process on Ethereum and most Rollup networks involves a public memory pool, creating a network environment where users (seekers) extract MEV from other users. In addition, the structure of the MEV value chain creates an imbalance where value is disproportionately captured by proposers rather than benefiting users.

2. Unichain

2.1 Overview

Unichain is an Ethereum Optimistic Rollup based on OP Stack, launched by Uniswap, Flashbots, OP Labs, and Paradigm, to solve the above problems. Unichain provides several key advantages through 1) verifiable block construction and 2) Unichain verification network:

  • Quick status updates

  • Applications capable of extracting and internalizing MEV

  • Fast settlement through fast finality

In addition to being a Rollup based on OP Stack, Unichain also plans to participate in the Superchain ecosystem. In addition to its native fast settlement capabilities, this integration is expected to provide users with a seamless liquidity experience through cross-chain solutions within the Superchain ecosystem.

Next, let’s take a closer look at how Unichain implements these functions.

2.2 Verifiable Block Construction

Verifiable block construction is achieved through Rollup-Boost, which was developed in collaboration with Flashbots. Rollup-Boost provides two key features: Flashblocks and verifiable prioritization. Similar to MEV-Boost, Rollup-Boost can act as a sidecar software.

2.2.1 Flashblocks

Flashblocks is a pre-confirmation mechanism released by TEE builders (we will explore it in detail below). Unichain generates local blocks, splitting a single block into four parts, creating a local block every 250 milliseconds and sending it to the sorter.

The sorter continuously downloads these partial blocks while executing transactions, providing users with early execution confirmation. The sorter guarantees that these partial blocks are included in the final proposed block. This process can speed up state updates, reduce latency, improve user experience, and reduce malicious MEVs.

2.2.2 Verifiable Prioritization

2.2.2.1 Prioritization

Prioritization is a block construction mechanism proposed by Dan Robinson and Dave White of Paradigm. It assumes that block proposers order transactions based solely on priority fees and do not censor or delay operations. This model is only feasible when there is a single or trusted block proposer. In a competitive environment such as Ethereum L1, where multiple proposers build blocks, priority sorting is not feasible.

The purpose of private orders is to allow DApps on the mainnet to levy a MEV tax on transactions that interact with them, thereby extracting some of the MEV value. This value can be used internally by the DApp or redistributed to users. The MEV tax is a fee imposed by the smart contract on transactions and can be set based on the priority fee of the transaction. Let's look at an example.

100y DEX on Unichain L2 wants to extract MEV value directly from MEV transactions that occur on its exchange. Since it knows that blocks on Unichain are built using priority ordering, this means that the MEV value of any transaction is determined entirely by its priority fee. 100y DEX sets a MEV tax equal to 99 times the transaction priority fee.

If an arbitrage opportunity worth 100 ETH appears, what is the maximum priority fee that a searcher is willing to pay to obtain it? The answer is 1 ETH. Setting the priority fee to ​​1 ETH results in a MEV tax of 99 ETH and a total cost of 100 ETH. If the searcher sets a priority fee higher than 1 ETH, the total cost will exceed 100 ETH, resulting in a loss. Therefore, 100y DEX can capture at most 99 ETH of the 100 ETH MEV value.

For regular users who do not extract MEV value, the priority fee will be set much lower, meaning that 100y DEX will not extract value from these transactions. Instead, it will only extract the MEV value represented by the priority fee. This setup allows applications to extract MEV directly, creating a variety of new potential use cases.

2.2.2.2 Verifiable? Using TEE

The key here is to ensure that the entity responsible for block construction uses the prioritization mechanism. To achieve this, Unichain implements two measures: 1) it separates the sequencer and the block builder, similar to the PBS model; 2) it forces the block builder to use a TEE (Trusted Execution Environment) to allow anyone to verify that the prioritization mechanism is being used.

A TEE is a secure section within hardware (e.g., a CPU) that runs independently from the rest of the system to securely process sensitive data. A TEE ensures that trusted code can run securely even if the external environment is compromised, such as ARM's TrustZone and Intel's SGX.

This design prevents even the operating system or programs with administrator privileges from accessing the secure area. To ensure that the code running in the TEE is trustworthy, we use an attestation process. This verification ensures that the TEE remains secure and has not been tampered with. For example, in Intel SGX, a hash value is generated to represent the code and data in SGX, and a hardware-managed private key proves the integrity of the code.

Unichain's block construction process takes place in the TEE of TEE builders. Thanks to the characteristics of TEE, these builders can first submit a proof to prove to users that they are using the priority sorting block construction mechanism. This combination of features ensures that applications on Unichain can reliably extract part of the MEV revenue.

2.3 Unichain Verification Network

The Unichain Verification Network is a decentralized network of node operators responsible for verifying the latest state of Unichain and providing fast finality, enabling seamless cross-chain transactions through economic security. This concept is similar to AltLayer's MACH, which uses EigenLayer for fast finality.

To become a decentralized node in Unichain, participants must stake UNI on the Ethereum mainnet. Each period, the node with the highest staked UNI balance will be selected into the active validator set and participate in verification by running the Reth Unichain client. In addition, similar to other networks, UNI holders can choose to delegate staking.

3. Final Thoughts

As a DApp, Uniswap has achieved strong product-market fit, and I am very bullish on its transition to a dedicated L2. However, as liquidity fragmentation remains a challenge, it will be important to watch how the Uniswap team can provide a seamless cross-chain trading experience between Ethereum L1 and Unichain L2.

From an investment perspective, it is particularly interesting that UNI tokens will now be used as staking tokens for UVN. Considering the strong performance of staking protocols such as EigenLayer, Symbiotic, and Karak, we can expect a large amount of UNI to be staked in UVN, which will greatly promote the growth of UNI's value.