Unichain: Will Uniswap drive the industry’s rise again?

撰文：Heechang、And Elitzer

Compiled by: Block unicorn

In 2022, Dan Elitzer wrote that Unichain (L2 chain launched by Uniswap) is inevitable, and he believes that it will be caused by inefficiencies and value loss in the existing Uniswap system. He pointed out that currently Uniswap traders face three costs: exchange fees paid to liquidity providers, transaction fees paid to Ethereum validators, and MEV (miner extractable value) costs.

Today, this prediction has become a reality, and Uniswap, the most widely used cryptocurrency decentralized trading protocol, has announced the launch of its exclusive Layer 2 solution, called Unichain. This OP Stack-based Rollup aims to solve key challenges in the DeFi ecosystem, focusing on improving DeFi's transaction execution environment, enhancing user experience, and solving liquidity fragmentation problems.

1. Background - The logic behind Unichain

1.1 Dan Elitzer’s prediction

Dan Elitzer's research shows that transaction fees and MEV costs paid to Ethereum validators and market makers exceed the exchange fees received by liquidity providers. This means that entities outside Uniswap are in a more advantageous position in value capture, that is, the value that should have belonged to Uniswap users, liquidity providers, or $UNI token holders is being extracted externally.

Block unicorn Note: MEV refers to the maximum extractable value of miners. When we trade on the chain, speculative traders will bribe miners by increasing the miner fees, get priority in trading opportunities, get ahead of us in trading, get arbitrage opportunities, and increase the cost of our on-chain transactions.

To summarize the argument for Unichain’s necessity: Unichain can help reduce value capture inefficiencies due to transaction fees and MEV costs, and increase value for $UNI holders. By operating its own chain, Uniswap can significantly reduce transaction fees, which is especially beneficial for small transactions. Additionally, solutions like range encryption or batch swaps can reduce MEV costs for traders.

Unichain's biggest advantage is the ability to achieve better incentives between Uniswap participants. Currently, $UNI token holders have limited options for value capture, mostly limited to governance decisions, such as adjusting swap fees. A dedicated chain would enable $UNI holders to benefit from transaction fees and internalized MEV, enhancing the token's value proposition. This approach would not only reward $UNI holders, but also create a more efficient trading platform for users, potentially solidifying Uniswap's position as the leading decentralized exchange (DEX).

1.2 Unichain - Capturing more value and achieving unification

Unichain, as a superchain, is built on OP Stack and brings two innovations designed to improve efficiency, user experience, and liquidity management across L2 blockchains:

The first key feature is Verifiable Block Building, which was developed in collaboration with Flashbots and includes a mechanism called Flashblocks. It achieves an effective block time of 200-250 milliseconds by dividing each block into four sub-blocks. This system enables Unichain to update the state faster. In addition, Unichain uses a Trusted Execution Environment (TEE) to separate sorters and block builders, and implements Priority Ordering, which taxes MEV opportunities and enables applications to directly extract and internalize MEV.

The second major feature is the Unichain Validation Network (UVN), a decentralized network of node operators that independently validate the blockchain state. UVN enables Unichain to provide fast finality and settle cross-chain transactions with economic security. When a new block is generated on Unichain, the validator must prove that it is part of the authoritative chain, thereby reducing the security risks posed by a single orderer. To become a validator, $UNI must be staked, and if they are selected as part of the active node set based on the staked weight, they will perform validation and receive rewards accordingly. This operating model allows $UNI holders to delegate their stake to the validating node and receive allocated rewards.

2. Key Points - UniChain’s Proposed DeFi Development Direction

Decentralized Finance (DeFi) is no longer limited to a single application, but has chosen an increasingly complex development path. DeFi applications are actively internalizing the value they generate, operating their own application chains or L2s, and developing wallet services. Application-Specific Sequencing (ASS), which allows applications to directly withdraw MEV, is also gaining attention. Among these trends, the launch of Unichain clearly shows the direction of future DeFi development: DeFi with enough users and scale will ensure the independence of its own infrastructure.

2.1 DeFi is getting fatter

DeFi chooses to internalize value that would otherwise be extracted externally through more complex development processes, improve user experience, or provide self-contained “money legos” through the interoperability of its own financial products.

This trend is reflected in applications that do not adopt L2 or L3 execution methods to avoid exposure to MEV extraction in the process of ordering transactions through ASS design. For example, controlling the order of transactions that rely on external oracle data enables applications to directly capture MEV (i.e., oracle extractable value, OEV), or avoiding MEV exposure through intent-based batch auctions using solver networks. Alternatively, they are enhancing the user experience and preventing value leakage to external third-party infrastructure by developing auxiliary infrastructure (such as optimized application wallet infrastructure or mobile interfaces).

2.1.1 ASS (Application Specific Sorting): CoW AMM

CoW AMM protects liquidity providers (LPs) from MEV by packaging transactions into an offline batch and auctioning the arbitrage portion. In a CoW AMM, solvers compete for the right to rebalance the CoW AMM pool whenever there is an arbitrage opportunity. Solvers who provide the most favorable trading conditions and retain the most profit (surplus) in the liquidity pool will be awarded the right to rebalance the pool. Through this batch auction, CoW AMM can capture the MEV value that arbitrage robots will extract when rebalancing price differences in the liquidity pool and eliminate the LVR (loss relative to rebalancing) risk faced by LPs.

2.1.2 Mobile/Wallet: Jupiter/Uniswap Wallet

Judging from the market share of current user devices, mobile devices account for 63% and desktop devices account for 37%, showing significant growth in the mobile device usage environment. Therefore, establishing a mobile environment becomes even more important in encrypted application development.

Recently, Jupiter launched a mobile app that can handle all functions from swaps, slippage adjustments, priority fee adjustments to fiat channels in a mobile environment. Users can trade at the best price without fees through Jupiter routing, thus getting a better DeFi experience.

In addition, Uniswap has also developed and deployed its own wallet service. Through this wallet, users can conveniently exchange from Uniswap's liquidity pool at the routed transaction price, and Uniswap Labs charges front-end fees for exchanges made through the wallet to create sustainable cash flow.

It can be seen that DeFi is no longer limited to the implementation of decentralized exchanges (DEX), money markets, or options DeFi contracts, but is realizing increasingly complex DeFi by introducing ASS or developing additional infrastructure. In this way, applications maximize the internalization of value in order to redistribute it to participants or provide an enhanced application experience. However, Unichain chose its own L2, aiming to become the "home of DeFi and cross-chain liquidity", indicating that in order for DeFi to create greater potential, expansion to L2 is an important choice beyond a single application.

2.2 From Dapp to L2

With the launch of Unichain, the roadmap for scaling applications to L2 becomes clearer. Many applications have chosen to improve infrastructure and user experience by expanding to L2, starting with a single DeFi product (such as stablecoins or liquid staking) and gradually expanding their vision. This L2 transformation creates significant value for applications in two main ways:

First, based on L2 infrastructure, applications can create various values ​​through unique mechanisms. For example, selling block space based on block demand has long proven to be a profitable business in the crypto industry, while sequencer revenue and MEV withdrawals create significant cash flow for L2 operators. Unichain’s L2 architecture presents new possibilities for operating MEVs in a differentiated manner through prioritization. Unichain separates block builders and orderers via TEE, enabling applications to directly control MEV and operate the earned MEV in agreement with users. In other words, Unichain provides a platform environment where applications and users control MEV, not orderers, and operate under consistent rules. This provides a meaningful methodology for application-specific L2 to employ this mechanism to control MEV.

Another value that can be enhanced by transitioning to L2 with applications is from a token economics perspective. Uniswap’s $UNI token has long had limited demand and little use outside of governance functions. As a result, the Fee Switch initiative was proposed early on to distribute Uniswap’s revenue to $UNI holders, but it was not actively pursued due to regulatory concerns.

In this context, the launch of Unichain gives $UNI a practical use. To become a validator of UVN, $UNI must be staked to build a cryptoeconomic security, and $UNI holders can receive allocated rewards by delegating their stakes to validation nodes. Therefore, the transformation of applications to L2 creates the possibility of accumulating value for native tokens, covering a variety of ways from sorter income to MEV and staking rewards.

While the L2 transition can significantly increase value in both of these areas, is it the ideal direction for the Ethereum ecosystem? Like all solutions, it brings double-sided results. From an overall Ethereum ecosystem perspective, there are currently over 100 different L2s decentralizing liquidity on the Ethereum chain. In addition, compared with L2 activities, relatively little value is accumulated on the Ethereum main chain, causing L2 to have a "parasitic" problem on Ethereum economically.

2.3 Ethereum Value Accumulation Issue

Ethereum’s current system for deriving value from L2 solutions has issues. These issues become more apparent as more applications build their own L2s. Currently, L2s only use ~0.9% of Ethereum’s total gas fees, showing a disconnect between L2 growth and mainnet value added. Recent updates, such as EIP-4844, further reduce the fees L2s pay to Ethereum, potentially reducing demand for ETH as gas fees.

This situation has raised concerns that L2 may be economically "parasitic" on Ethereum. Despite Ethereum's large ecosystem and strong developer community, its economic model is being questioned. As L2 pays less fees, it means less revenue for the Ethereum network, which may weaken the value of ETH. I believe that L2 solutions, while benefiting from Ethereum's existing system, may not support the economic health of the main layer enough.

However, as the L2 ecosystem expands, it may attract more liquidity, potentially establishing ETH as the primary currency for economic activity within Ethereum. While this may sustain the use of ETH as an asset, the question remains: can ETH continue to grow and become a more valuable asset in this system?

3. Other theories

3.1 Jon Charboneau’s opinion: “L2 is to Ethereum like Tesla is to California.”

3.2 Mason Nystrom’s Viewpoint from Pantera

Key insights about Unichain and why it matters:

• Token Value Accumulation: $UNI evolves from a governance token to a fee accumulation token. Validators with the highest $UNI stake earn rewards by validating the network and collecting fees.

• Unichain supports the “fat app” theory: applications create their own chains for economic control and block space management. Uniswap’s chain will capture fees from a variety of transactions, including swaps, lending, and perpetual contracts, going beyond traditional DEX activities.

• Internalizing MEV: Unichain’s verifiable block construction and “flash block” ordering demonstrates potential. Applications are exploring how to internalize MEV or redistribute it to users and stakeholders.

• Unichain vs Ethereum: Unichain could have a significant impact on Ethereum mainnet. DeFi activity could move to Unichain, with the attraction being the sorter fees from $UNI staking and better user pricing.

• Vertical integration: Larger applications have an incentive to control the entire tech stack — from the application (Uniswap wallet, frontend + Uniswap X) and protocol (Uniswap V4, V3, V2) to the blockchain (Unichain).

These perspectives highlight Unichain’s potential impact on the DeFi ecosystem, especially with regard to token economics, MEV internalization, and the trend toward application-controlled chains.

3.3 Ryan Watkins from Syncracy Capital

In this article, Ryan Watkins questions the view that Bitcoin and stablecoins are the only valuable blockchain applications. He argues that we have entered an era of diversified blockchain applications. Platforms such as Ethereum and Solana now host many applications that generate significant revenue and grow rapidly. Despite this, these applications are still valued lower than their underlying blockchain infrastructure. Trends show that applications are earning more and more blockchain fees, often exceeding infrastructure assets. This shift may mark a turning point in the development of blockchain.

The rise of "fat apps" in blockchain represents an increase in application autonomy. The reasons driving the development of "fat apps" include the need for better scalability, improved user experience, and greater economic control relative to the underlying infrastructure. With the evolution of chain abstraction and smart wallet technology, this application-centric approach is expected to become smoother, potentially reshaping the way value is distributed and controlled in the blockchain ecosystem.

Ryan Watkins’ perspective highlights the growing importance of applications in the blockchain ecosystem and the impact this trend has on infrastructure and application value distribution.