Detailed explanation of how Puffer UniFi copes with Ethereum’s fragmentation challenge

Author: Roland Roventa

Translation: vernacular blockchain

Trump’s recent victory has sparked a DeFi renaissance, putting Ethereum in a good position to capitalize on the momentum, with the platform holding 63% of the world’s DeFi TVL. Ethereum may have found the long-anticipated catalyst, putting it in an ideal position to benefit from a regime change. The Ethereum ecosystem has been steadily beating expectations since the results of the U.S. presidential election were announced.

However, Ethereum’s Rollup-centric roadmap, while crucial to scalability, also poses a major challenge: fragmentation. The current Rollup ecosystem operates in an environment where the winner takes the lion's share, spreading liquidity, attention, and users to isolated L2s. To fully capitalize on this resurgent interest in DeFi, Ethereum must address these divisive dynamics to create a more unified and accessible network.

1. Bridging the Divide: Solving Ethereum’s Fragmentation and Liquidity

Challenges

Puffer Finance’s innovative solution, UniFi, addresses Ethereum’s fragmentation challenges head-on. We believe Puffer will perform well once the market sees it as an innovative new infrastructure solution and not just another Liquid Restaking Token (LRT).

What is Puffer originally? Initially, Puffer was a leading LRT protocol focused on providing decentralized staking solutions.

What is Puffer now? Puffer has evolved into a unified Ethereum-centric solution.

Puffer has grown from the first native Liquid Restaking Protocol into a comprehensive Ethereum integrated extension ecosystem, consisting of three main components that this article will explore:

1. Decentralized Liquid Restaking Token (LRT)

Puffer's flagship anti-slash LRT offers enhanced yields and security, supporting decentralized staking within the Ethereum ecosystem.

2. Rollup Stack based on UniFi

A Layer 2-based ordering solution that achieves seamless interoperability of L2<>L2 and L2<>L1 transactions, providing efficient atomic composability for cross-chain interactions.

3)UniFi PreconfAVS

The industry's first pre-confirmed AVS provides almost instant transaction finality for L1 and L2, significantly improving the speed and reliability of the Ethereum network.

Puffer Finance's UniFi-based Rollup Stack transforms Ethereum's fragmentation into an ecosystem of positive sums.

2. UniFi-based Roll-up stack - what is it? How does it work?

1. What is L1-based Roll-up?

Roll-up based on L1 is an advanced extension method that directly integrates Ethereum's shared sequencer and avoids relying on a centralized sequencer (this is a common practice in other optimistic and zero-knowledge L2). This concept was first proposed in a research article by Justin Drake in March 2023. He defined it as follows:

“When the ordering of a roll-up is driven by the underlying L1, we call it a roll-up based on L1 or L1 ordering. More specifically, an L1-based roll-up means that the next L1 block producer can interact with the L1 Searchers and builders collaborate to include the next roll-up block as part of the next L1 block without permission." - Justin Drake.

For non-technical people, this passage may be difficult to understand. Simply put, L1-based Roll-up is an efficient solution that directly verifies transactions on L1 and fully utilizes the existing mechanisms of Ethereum. Other mainstream roll-up solutions (such as optimistic and zero-knowledge) require the transaction to be verified on L2 before sending it to L1.

By basing ordering on L1 (ordering performed by Ethereum validators), the following advantages can be achieved:

Inheriting the liveness and decentralization characteristics of the Ethereum network ensures reliability without relying on a single point 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, which enables faster transaction finality (discussed in detail later).

Aligned with L1’s economy to create new revenue opportunities for existing validators through non-predatory MEV (Maximum Extractable Value).

Operational costs are lower because transaction ordering is handled by L1.

The main disadvantage is that a roll-up based on L1 will transfer the MEV income to L1, and its own income is limited to basic transaction fees.

2. L1-based Rollup is better than optimistic Rollup

in short:

By optimizing the transaction ordering process at the base layer, costs can be reduced and speed increased, while maintaining the inherent security and decentralization of the Ethereum network.

3. Puffer is a solution based on L1

UniFi is an Ethereum-based roll-up that allows the creation of App Chains through its technology stack.

They solve the problem of Ethereum’s liquidity fragmentation by enabling synchronous composability. Transactions on UniFi can directly interact with other L1-based roll-ups without the need for cross-chain bridges, creating a unified liquidity and application layer. Developers can easily launch their own application chains, capture transaction fees and take advantage of shared liquidity.

Their goal is to bring atomic composability to Ethereum, redefining what is possible on the chain. Through atomic composability, UniFi will allow smooth and integrated interactions between L1 and L2 within a single Ethereum block. Imagine that a user or protocol could deposit assets to UniFi from L1, complete complex operations on the chain (such as trading or yield farming), and then withdraw back to L1 within the same 12-second Ethereum block. Not only is this extremely fast, it also represents a major advancement in blockchain interoperability.

Puffer does not compete with L1, but extends the functionality of L1 in an integrated manner.

1. How does it work?

Inspired by collaborative research with Justin Drake, Puffer UniFi uses Trusted Execution Environments (TEEs) in its processing stack. To achieve real-time proofs, Puffer uses TEEs as initial "training wheels." Real-time proofs improve interoperability. When zero-knowledge provers are fast enough, the prover can evolve from relying on trusted hardware to a completely zero-knowledge based solution.

2. Architecture analysis of Puffer

3. Architecture overview

Puffer's UniFi Preconf AVS provides users with L2 execution confirmation, and users can experience sub-second transaction speeds when interacting with UniFi. In UniFi's general rollup, local revenue tokens can be used as gas tokens.

The consensus layer, data availability layer, and settlement layer are all components of the base Layer 1 (in this case, Ethereum). Rollup is only responsible for the execution layer.

This is the uniqueness of the Puffer application chain.

4. Why is this important?

Puffer builds its own application chain through L1-based Rollup to enable seamless integration of the EVM protocol. This gives every participant in the ecosystem, from individual validators to large-scale decentralized applications (dApps), an opportunity to participate and benefit, driving a faster, more efficient and more decentralized Ethereum. Square development. Ethereum’s fragmentation problem has gone on for too long, and it’s time for a change.

5. Ecosystem overview:

6. Growth stage

Growth will occur in phases:

Phase 1: They will introduce L1-based Rollup to users and developers. Protocols that are not yet ready to run their own application chains can be deployed directly on UniFi.

Phase 2: UniFi SDK will be launched, allowing any dApp developer to create their own application chain in a more streamlined way.

4. UniFi Preconf AVS

UniFi provides near-instant execution confirmation through Preconf. This isn’t just a speed increase, it’s a whole new way to scale Ethereum. Pre-confirmation is a solution to Ethereum’s fragmentation problem and provides ultra-fast confirmations.

1. How to implement?

Since Ethereum’s 12-second block generation time limits the rapid finality of transactions, pre-confirmation (Preconf) has become the key to improving user experience. To this end, Puffer developed the proprietary Preconf AVS, which provides instant confirmation that a transaction will be included in the next block in approximately 100 milliseconds. This significantly improves the speed and reliability of the L1 Rollup-based ecosystem.

2. Working principle

There are two types of pre-confirmation: execution pre-confirmation and inclusion pre-confirmation. Both can be used to provide faster acknowledgments to L1 or L2 users. The advantage of execution pre-confirmation is that it provides users with a final and guaranteed commitment, including confirmation of the status of the transaction when it is executed. For example, it can confirm the execution price of a transaction, thus improving the user experience.

Implementing execution pre-confirmation in L1 is more complicated, but L2's execution pre-confirmation can solve this problem well. Puffer's UniFi AVS takes advantage of this feature to significantly improve the user experience.

Pre-confirmation requires solid guarantees. Since pre-confirmation is a promise made by the proposer (validator or delegated proposer), failure to deliver will result in penalties such as slashing. Heavily collateralized protocols like EigenLayer play a key role in providing slash guarantees for pre-confirmations. Notably, Puffer's UniFi Preconf AVS is the first of its kind to run on EigenLayer.

3. UniFi: the catalyst for Ethereum’s unified ecosystem

UniFi’s Synchronous Composability is disruptive. Interactions across Rollup can occur as on a single chain, eliminating the need for L2 bridges (no one likes using bridges), reducing costs, and mitigating the security risks of asset transfers. UniFi’s approach unifies liquidity and enables developers and users to seamlessly interact across chains, improving the Ethereum user experience like never before.

For developers, UniFi provides a unique opportunity to scale applications in a unified, low-friction environment. By eliminating the need for centralized ordering, UniFi significantly reduces operational costs, allowing developers to focus on the product without worrying about the complexity of managing an isolated L2. UniFi's setup makes starting an L1-based Rollup almost as easy as deploying a smart contract, significantly lowering the entry barrier for developers and encouraging innovation.

4. Unlocking revenue: How Puffer’s rollup-based and pre-confirmation creates value for the Ethereum ecosystem

All revenue streams will generate treasury rewards and be governed by $PUFFER Token.

Puffer's upgraded revenue model (not just LRT) leverages rollup-based and pre-confirmation to create sustainable value in the Ethereum ecosystem. By being based on Rollup, Puffer generates ordering fees by letting Ethereum validators manage transaction ordering. This approach enables seamless interoperability between Ethereum L1 and L2, and between L2, creating unified liquidity and composability. Through sequencing fees integrated with the Ethereum validator network, Puffer captures transaction-based revenue while strengthening Ethereum’s native economic value.

Users can prioritize transactions by paying a pre-confirmation tip, which provides Puffer with an additional revenue stream beyond transaction inclusion fees. These fees and tips are fed back into the Puffer ecosystem, enriching its native tokens pufETH and unifiETH, and providing benefits to token holders.

As Puffer contributor Amir explains:

“If every user pays extra for pre-confirmations to ensure transactions on Ethereum are faster and more reliable, then AVS is tied to every transaction a user makes on Ethereum. This creates a very powerful The revenue generated AVS can continue to provide organic income 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 token economics design. An excellent protocol must have a well-thought-out token model and focus on providing value to long-term holders. Mechanism Capital focuses on token economics design, supporting teams that innovate and maximize their token value capture.

Puffer Finance launched vePuffer as an update to Tokenomics with the goal of delivering value to holders and aligning incentives across the ecosystem.

Key features include:

Decentralized governance: Through vePUFFER, the community can vote to determine the distribution of PUFFER points, which is in line with Puffer's decentralization goal.

Tradeable Points: Season 2’s ERC20 PUFFER Points 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 personal strategies and market sentiment, enhancing risk management.

Bribery market: The protocol can provide incentives to vePUFFER holders to vote for their own capital pool, thereby increasing annualized rate of return (APR) and liquidity.

Competitive Protocols: Bribery systems allow protocols to attract votes to increase APR, drive participation and align incentives.

Community-driven rewards: The vePUFFER model promotes governance, speculation, and diversification strategies, empowering users to shape ecosystem incentives.

6. How Puffer’s UniFi stands out: revolutionizing the Ethereum Rollup ecosystem

With the launch of UniFi, Puffer creates opportunities for Ethereum to transform from a fragmented rollup environment into a unified positive-sum ecosystem, bringing together developers, users, and liquidity in an unprecedented way. The result is a stronger, more resilient Ethereum that can meet the needs of billions of people.