Uniswap's Wild Evolution! From Protocol to Chain, How Will Unichain Reshape DeFi Landscape

Image source: Mars Financial

In the decentralized finance (DeFi) industry, Uniswap has always occupied an unshakable leading position in terms of trading volume, user base, and technological innovation. Two months ago, Uniswap Labs officially launched Unichain, an Ethereum Layer2 network based on OP Stack, and went live on the testnet. This news has not only attracted widespread attention within the industry but also injected new imagination space into the DeFi market.

As the largest position in Grayscale's DeFi holdings, the influence of $UNI has already crossed the boundaries of DeFi. The launch of Unichain undoubtedly redefines Uniswap's positioning, moving from a single protocol to a chain-level platform as DeFi infrastructure.

Since the announcement of Unichain by Uniswap labs on October 10th, the price of $UNI has surged 134% in a month.

Image source: Mars Financial

Now, Unichain is about to go online. Why does Uniswap want to build its own chain? What changes can Unichain bring to the DeFi market? From technical innovation to token empowerment, to market positioning and value calculation, this article will comprehensively analyze the core highlights and future potential of Unichain.

From the rise of application chains to the birth of Unichain

The concept of AppChain was first promoted by Cosmos SDK and has experienced a new outbreak in recent years with the maturity of Ethereum's expansion solution. As a blockchain designed specifically for specific applications, AppChain can provide highly customized performance optimization to meet the dual needs of top projects in terms of performance and narrative. From Cosmos' Terra to chains such as Base and Mantle built on Optimism OP Stack, AppChain has gradually formed a new trend of development.

Under this trend, Uniswap launched Unichain, not only following this trend, but also attempting to break through the limitations of existing DeFi protocols with innovative technology and economic models. The launch of Unichain symbolizes Uniswap's entry into a new phase from a single application to a chain-level architecture, demonstrating its ambition to reshape the DeFi market landscape.

The rise of application chains stems from their ability to provide unique technical advantages for specific protocols. Traditional public chains (such as Ethereum) are general platform chains, where all protocols need to share the same network resources, while application chains are tailored blockchain environments specifically for a certain protocol. This design has several major advantages:

Customization: optimize consensus mechanism, cost structure, and privacy model to fully meet protocol requirements.

Performance optimization: supports faster transaction confirmation speeds and lower fees, improving user experience.

Autonomy: Give the protocol greater development and governance freedom, reducing reliance on the main chain.

From the launch of Cosmos SDK in 2018 to the popularization of modular tools such as Optimism's OP Stack and Arbitrum Orbit in 2023, the technical barriers of application chains have significantly lowered. This has created conditions for more protocols to enter the application chain industry.

As a leader in the DeFi industry, Uniswap has been exploring how to further expand its protocol capabilities. Behind the launch of Unichain, it is not only to solve the problem of performance bottleneck, but also based on the following two considerations:

Performance requirements: Although the Ethereum main chain has very high security and decentralization, its transaction speed and cost have always been important bottlenecks restricting the user experience of Uniswap. Based on the OP Stack technology architecture, Unichain can achieve a block generation speed of 250 milliseconds and significantly reduce transaction costs, providing users with an almost real-time trading experience.

Narrative breakthrough: The launch of the application chain has transformed Uniswap from a single protocol into a chain-level platform that can carry a larger narrative, bringing new value empowerment to its $UNI token. This transformation not only helps consolidate its position in the DeFi market, but also opens up more possibilities for its future ecological layout.

Unichain's technological innovation

To address the current bottlenecks encountered by Uniswap, Unichain's design ranges from performance to fairness, and then to cross-chain interoperability. Each innovation is dedicated to solving the practical problems encountered by DeFi users and developers in the existing blockchain ecosystem, with 5 major technological innovations being the most noteworthy.

1. Separation of Rollup-Boost and Sequencer Builder: Redefining the Fair Rules of MEV

In traditional blockchain architectures, the dual roles of sequencer and block builder are often centralized in a single entity, which leads to the proliferation of MEV (Miner Extractable Value) issues. Unichain's Rollup-Boost technology introduces Sequencer Builder Separation (SBS) to completely separate sequencing from block construction, providing a brand new solution for fair distribution of MEV.

In the specific implementation, Unichain introduces Block Builder Sidecar as a module connecting the sorter and external block builders, allowing builders to submit block proposals through market competition. When the sorter receives multiple block proposals, it selects the optimal solution to submit to the chain. This design not only decentralizes the power of block building, but also ensures that MEV profits are no longer monopolized by a single sorter. This mechanism directly alleviates the decrease in user experience caused by front-running transactions or censorship behavior, while making the distribution of MEV more transparent and fair.

2. Trusted Execution Environment (TEE): The New Cornerstone of Transaction Privacy and Fairness

The privacy and fairness of blockchain transactions have always been the core of technological breakthroughs, and Unichain has taken these two points to a new level with the Trusted Execution Environment (TEE) technology. TEE provides a hardware-level secure space for processing sensitive logic during transaction ordering and block construction.

The biggest highlight of TEE is its ability to simulate multiple possible paths for transaction execution and eliminate potential failed transactions to ensure the efficiency of the final block construction. In user interactions, this mechanism significantly reduces the number of failed transactions caused by network congestion or malicious behavior. In addition, TEE also supports the generation of execution proofs, allowing users to verify whether the order of each transaction conforms to the principle of fairness. For DeFi users who have long been troubled by the MEV problem, this is a significant optimization.

Privacy protection is another core function of TEE. During the block construction process, the specific details of the transaction are invisible to the external, which effectively prevents malicious behaviors such as front-running and provides a more stable environment for high-frequency transactions.

3. Flashblock: smooth trading experience every 250 milliseconds

The length of block time directly affects user experience, and Unichain's Flashblock technology compresses this indicator to the extreme - partial confirmation can be completed every 250 milliseconds. Traditional blockchains often have low block generation efficiency due to the delay in state root calculation, while Flashblock decomposes the complete block into multiple small parts, significantly improving transaction speed through parallel processing.

The benefits of this mechanism are not only reflected in speed. For liquidity providers (LPs), the shorter confirmation time significantly reduces the adverse selection risk brought by market fluctuations, while also reducing slippage losses. For regular users, Flashblock means a lower transaction failure rate and almost instant transaction feedback. The ability for fast confirmation not only optimizes the user experience in the Uniswap ecosystem, but also provides an excellent environment for high-frequency traders.

4. Unichain Verification Network (UVN): The Secure Shield of Sorter

To address the potential risks brought about by the centralization of the sorter, Unichain has designed the Validation Network (UVN) as an additional layer of security. In this architecture, the validators of UVN operate independently from the sorter and are responsible for verifying the legitimacy and consistency of the blocks.

UVN's concurrent verification not only reduces the risk of single point failure that may occur in the sorter, but also accelerates the final confirmation of blocks. Through this design, Unichain has found a new balance between decentralization and efficiency, providing users with higher security.

5. ERC-7802 Cross-chain Intent: Building Bridges for a Multi-chain World

In the context of the multi-chain ecosystem, the cross-chain liquidity of assets is the key to determining the efficiency of inter-chain cooperation. The Uniswap team and the Optimism team jointly proposed the ERC-7802 cross-chain token standard, with the goal of maintaining a unified standard for tokens when crossing chains. ERC-7802 defines standardized minting and burning interfaces to ensure that the total supply of assets remains constant when circulating between chains.

This standard application scenario includes the fast cross-chain operation of tokens on Unichain. For example, users can seamlessly transfer ERC-20 tokens from the Ethereum mainnet to Unichain and then reverse the operation to other ecosystems. The modular design of ERC-7802 further reduces reliance on specific cross-chain protocols, leaving more room for the expansion of future cross-chain technologies.

Through these five technological innovations, Unichain has not only solved the performance, privacy, and fairness issues in the existing blockchain ecosystem, but also taken a significant step in the interoperability industry. These groundbreaking technologies have laid the foundation for Unichain's core competitiveness in the DeFi market and provided a new paradigm for the industry's future development.

$UNI Token Empowerment: From Governance to Revenue

The launch of Unichain is not only a technological innovation, but also brings new use cases and economic value to the $UNI token. From governance tools to productive assets, the transformation of the $UNI token has made it play a more important role in the Uniswap ecosystem.

Validators and Staking Mechanism: The core driving the operation of the network

In the Unichain architecture, validators are the core of ensuring network security and efficiency, and the prerequisite for becoming a validator is to stake $UNI tokens. Unichain's validation network adopts a unique economic model that encourages users to stake $UNI tokens to participate in network governance and profit distribution.

The operating mechanism is as follows:

Mainnet Staking: Validators need to stake $UNI tokens on the Ethereum mainnet, and the staking data is synchronized to the chain through Unichain's native cross-chain technology.

Earnings Distribution: At the beginning of each verification period (Epoch), the validator with the highest staking weight is selected as the active node, responsible for block verification and receiving fuel cost rewards. Nodes that do not participate in the verification process will not receive any earnings.

This mechanism adds practical functions to $UNI staking, making it more than just a governance token and turning it into a productive asset. Users can not only help maintain network stability through staking, but also earn actual profits through transaction fees and block rewards.

MEV revenue distribution: innovative fair incentive

MEV (Miner Extractable Value) is an important part of the Unichain economic model. In traditional blockchains, the profits from MEV are usually monopolized by sorters or miners, which not only leads to the concentration of resources but also increases transaction costs for users. Unichain, on the other hand, changes this unfair situation by introducing a mechanism for redistributing MEV.

On Unichain, the sequencer distributes the profits of MEV to the validators and liquidity providers in the network according to the rules through the Trusted Execution Environment (TEE). This mechanism allows all roles participating in the ecosystem to fairly share the value of MEV, rather than being monopolized by a single entity.

Specifically:

MEV tax: Applications can set priority sorting rules for their transactions, distributing part of the MEV income to LP or directly rewarding users.

Earnings Pool Distribution: The MEV earnings generated in each transaction are proportionally injected into the reward pools of validators and users, increasing the network's participation enthusiasm.

This innovation not only reduces the participation risk of LP, but also attracts more users to join the ecosystem, providing strong support for the liquidity growth of Unichain.

$UNI's value transformation: from voting rights to core ecological assets

In the early days of Uniswap, $UNI functioned primarily as a governance token for protocol governance and community decision-making. However, with the launch of Unichain, the functionality of $UNI has been significantly expanded:

Pledged assets: Validators can pledge $UNI to receive block rewards, making the token an important economic tool for the validation network.

Cross-chain interoperability: Through the ERC-7802 standard, $UNI circulates more efficiently between Unichain and other ecosystems, further enhancing its liquidity and adaptability.

Income growth: The introduction of MEV redistribution and gas fees has brought real income growth to holders of $UNI.

What's more, the new role of $UNI in Unichain enables it to enter a positive cycle of 'empowerment-value-added-feedback'. The demand for validator staking, the distribution of MEV profits, and users' pursuit of lower transaction costs together drive the demand growth of $UNI, making it more attractive in the DeFi market.

By redefining the use cases of $UNI, Unichain has not only strengthened Uniswap's central position in decentralized finance, but also brought more diversified economic benefits to ecosystem participants. This token-enabled innovation makes Uniswap's ecosystem more sustainable, while providing a new reference example for the DeFi market.

Unichain's market positioning and future prospects

The birth of Unichain is not only an upgrade to its own ecosystem, but also a precise response to the trend of blockchain industry development.

Comparison of Application Chain and General Rollup: Unique positioning in multiple dimensions

Unichain is positioned as a dedicated Layer 2 chain based on the Optimism OP Stack, which sets it apart from both traditional application chains and the development mode of general Rollups.

In contrast to the flexibility of application chains: application chains are often tailored to a single protocol, such as the dYdX Chain built on Cosmos, which focuses on perpetual contract transactions. While Unichain is a dedicated chain for Uniswap, it retains the interoperability of the general Rollup. Unichain's design allows for easy deployment of other DeFi applications, forming a super ecosystem of liquidity sharing.

In contrast to the generality of Rollup: Generic Rollups, such as Arbitrum and zkSync, focus on providing scalability for a wide range of use cases. In comparison, Unichain is deeply optimized for DeFi transactions, with Flashblocks and priority sorting mechanisms ensuring minimal latency and efficient transaction execution. This customization gives it a clear competitive advantage in DeFi applications.

This positioning between the application chain and the general Rollup allows Unichain to focus on the development of its own ecosystem and at the same time maintain interoperability and compatibility within the larger Ethereum ecosystem. In addition, Unichain's interoperability is not only reflected at the technical level, but also in its support for the Ethereum Rollup-Centric strategy. As a member of the OP Superchain ecosystem, Unichain fully utilizes the cross-chain communication capabilities provided by Optimism, and at the same time enhances the flexibility of cross-chain operations through the ERC-7802 standard extension.

OP Superchain's ecological advantages: Unichain can achieve seamless circulation of assets and information with chains such as Base and Mantle through the native interoperability of Optimism. This ability to share ecological resources allows Unichain to quickly establish liquidity advantages at the start-up stage.

Application of ERC-7802 Cross-Chain Intent: Through standardized cross-chain operation interfaces, Unichain can simplify the process of transferring tokens between different chains. For example, users can easily cross-chain $UNI from the Ethereum mainnet to Unichain, conduct efficient DeFi transactions, and then return to other chains for further operations. This design reduces the complexity of cross-chain operations and provides users with a better experience.

This efficient ecological integration capability makes Unichain not only a technical extension of Uniswap, but also an important pillar of the entire Ethereum multi-chain ecology.

After UniChain goes live, will $UNI take off directly?

DeFi Report founder Michael Nadeau said that Uniswap's new L2 blockchain, Unichain, may bring good news to the creators Uniswap Labs and the token holders, who could earn nearly $468 million annually from the fees originally payable to the Ethereum network. Uniswap Labs and UNI token holders will benefit the most from Unichain, while Ether holders may suffer the greatest losses. Potential sources of income are as follows:

Settlement fee: Uniswap Labs (and most likely UNI token holders) do not need to pay $368 million to Ethereum validators, but obtain this fee upon the launch of Unichain.

MEV: In addition to collecting Ethereum settlement fees, Uniswap will also be able to obtain MEV because they will have validators on Unichain. It is estimated that MEV accounts for about 10% of the total fees paid by Uniswap (which was $100 million last year). They can also choose to share a portion of it with token holders.

Liquidity Provider: Liquidity providers will continue to receive 100% of the transaction fees and may also participate in settlements and MEV once Unichain is launched.

First, let's take a look at the composition of 4.68 billion US dollars: 3.68 billion US dollars in transaction fees (i.e., Gas fees paid to Ethereum validators at the time of transaction) and 1 billion US dollars in MEV value (additional income generated by validators through transaction reordering, sandwich attacks, etc.).

As a Layer 2 technology based on Optimistic Rollup, Unichain can process transactions in its independent network and then submit the batch transaction data to the Ethereum mainnet. During this process, Unichain has the opportunity to capture transaction fees and MEV revenue. However, whether this idea can become a reality depends on an important premise: all LPs and transaction activities of liquidity pools must be completely migrated from the Ethereum mainnet to Unichain, while the efficiency of capturing MEV needs to reach 100%.

Obviously, such conditions are difficult to achieve.

Despite the emergence of various Layer 1 and Layer 2 solutions in the market, Ethereum remains the preferred platform for most altcoins and DeFi liquidity. With its mature ecosystem and market acceptance, Ethereum has become a core barrier that is difficult to shake in terms of liquidity migration. Moreover, liquidity migration itself carries high costs and risks, making it almost impossible to fully transfer liquidity to Unichain on a large scale.

Of course, Unichain can also encourage some funds and trading activities to shift to its platform through attractive incentives, such as low transaction fees and liquidity mining. However, even so, the scale of this migration is still limited.

So, how much value can Unichain actually capture?

Image source: Artmis

Image Source: Artmis

With dYdX being the reference for the first application chain, its V4 version (dYdX Chain) has seen a fourfold increase in monthly trading volume since its launch, accounting for 82% of the total protocol trading volume. However, compared to perpetual contract trading, the performance requirements for spot trading and asset exchange are relatively lower, so Unichain is unlikely to reach the trading volume or TVL of dYdX in the short term. By conservative estimates, Unichain's value capture may only be 30% of the theoretical value, bringing in approximately $140 million in revenue for Uniswap annually.

In addition, for a long time, $UNI has been criticized for failing to effectively capture the value of the protocol, and the launch of Unichain provides a solution to this problem. Through the empowerment of Unichain, $UNI can directly capture the value generated by the protocol, which is crucial for the token economic model.

It can be seen from this that the launch of Unichain will undoubtedly have a profound impact on the ecosystem. Unlike abstract and distant ideas like Uniswap X, Unichain is a major advantage that can be implemented and demonstrated effectively.

As the undisputed leader in the DeFi track, Uniswap will not miss this bull market. We can boldly predict that ATH will be achieved within 3 months, and this is just the beginning.

Conclusion

Uniswap's Unichain is not only a technological breakthrough, but also a strategic layout for the future pattern of DeFi. Through five core innovations, Unichain has brought new imagination to the DeFi market in performance optimization, privacy protection, liquidity aggregation, and ecological integration.

As Syncracy Capital's Ryan Watkins said, blockchain applications are undergoing a significant transformation from relying on the underlying layer to controlling their own economy. The launch of Unichain not only strengthens Uniswap's core position in the DeFi market, but also injects new vitality into the Ethereum ecosystem. Under the dual drive of technological innovation and economic transformation, the success or failure of Unichain will become an important touchstone in the era of blockchain diversification.

The next step for DeFi may have already begun with Unichain. Let's wait and see.

Disclaimer: This article does not constitute investment advice. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances and comply with the relevant laws and regulations in their country and region.

This article is authorized for reprint from: "MarsBit"

Original author: Luke, Mars Finance

'Uniswap's wild evolution! From protocol to chain, how does Unichain reshape the DeFi landscape?' This article was first published in 'Crypto City'