IOSG | What is the necessity of Unichain? A preliminary study of Unichain

Written by: IOSG Ventures

Foreword

Over the years, Uniswap has been continuously pushing reforms in features and innovations to make exchanges more user-friendly and fair. For example, we have seen Uniswap Mobile, Fillers Network in UniswapX, ERC-7682 for unified cross-chain intent standards, and hooks for custom AMM pools that will soon be opened in Uniswap V4.

On October 10, Uniswap announced their overall optimistic Rollup, Unichain. The chain aims to become a one-stop liquidity center in the superchain ecosystem, providing traders with a near-instant exchange experience and lower spreads, while maximizing the privacy and integrity of MEV participants in the process, and using TEEs in the process.

While these visions are impressive, users question whether another L2 is needed, with some, including Vitalik, commenting that Unichain = "a copy of Uniswap on each Rollup." In other words, he believes that launching a Uniswap clone on a new chain actually serves the same purpose as launching Unichain itself.

So, is Unichain a good thing or a bad thing? Today's article will explore the architecture of Unichain and understand the "necessity" of Unichain.

1. What is Unichain?

Unichain is an optimistic rollup designed to perform near-instant transactions while using privacy technology TEE to minimize potential impact on on-chain LPs and exchangers.

Because Unichain is built with the same properties and standards as other optimistic rollup chains, it can now take advantage of interoperability in the superchain ecosystem and access shared liquidity across the entire network.

To this end, Unichain has brought 4 major innovations:

• Rollup-Boost and Sequencer Builder Separation

• Block Building in TEE

• Flashblock

• Unichain Verification Network (UVN)

1.1 Rollup Boost: Sequencer Proposer Separation (SBS)

Block Building is the key to solving the MEV problem.

Before MEV Boost, Ethereum was plagued by censorship risks and poor user experience. Users faced high transaction fees and front-running issues due to fierce competition among seekers for profit-driven order inclusion. To address these issues, flashbot built MEV-boost.

MEV Boost separates the roles of block builders and proposers by introducing relayers to aggregate the roles of block builders and proposers and submit the most profitable blocks to proposers for signing. This design effectively decentralizes the MEV extraction process and democratizes MEV profits among validators and professional builders.

The concept of Rollup Boost is similar to MEV Boost, where the L2 with SBS (Sequencer Builder Separation) enabled can separate the block building process from the sequencer's execution engine through a system called "Block Builder Sidecar".

In short, there are 4 main components inside the system:

• OP-node

• OP-geth

• Sidecar / Blockbuilder Sidecar

• External block builder

Below is the optimism architecture diagram, we can see that the sequencer node (aka op-chain) consists of Op-geth and Op-node.

In order to distinguish the roles of block construction and proposal in the sorter, a component called Sidecar is added. Sidecar enables OP nodes to receive blocks from external builders, thereby creating a market between block builders and proposers.

The workflow is as follows:

1. The OP node sends an update to the sidecar.

2. The sidecar forwards updates to op-geth as a middleman

3. When the OP node requests a block from OP-geth, the sidecar intercepts the request.

4. The sidecar then forwards the request to the external block builder, which is the "gap" where external builders can bid and compete.

5. After receiving the external/winner block, the sidecar sends it to the OP node.

6. If no block is received, the sidecar forwards the locally generated block.

The main benefit of the block builder sidecar is that upgrades do not require modifications to the OP chain client, while allowing for more flexible, simplified, and more censorship-resistant transaction ordering rules. However, some delays may occur due to the addition of an intermediary (sidecar).

1.2 Rollup Boost: Sequencer Proposer Separation (SBS)

Rollup Boost takes this a step further by introducing a Trusted Execution Environment (TEE) into the block building process to ensure the integrity of transactions. Real-time performance is possible thanks to the latest hardware advancements such as Intel TDX.

For those who are not familiar with TEEs, they are secure areas within a processor or hardware that provide enhanced privacy by preventing unauthorized entities from reading the data inside. At the same time, the TEE maintains a high level of integrity as the code within the TEE cannot be modified or replaced.

In the context of Rollup Boost, Unichain will use TEE builders to reduce the risk of MEV leakage. This means that when bundles or transactions are sent to the TEE block builder, the integrity aspect of the TEE guarantees that the order in which transactions arrive at the builder cannot be affected by external parties trying to extract more MEV.

In addition, TEE provides trustless restore protection, which protects users from failed transactions because the TEE can run simulations and will be detected and eliminated before any restored transactions are processed. This not only increases the efficiency of the AMM (since no failed transactions will go through), but also improves the overall user experience, especially during periods of high volume.

To increase transparency in the ordering and block building process, execution proofs are made public to users after a block is generated. This proof is essential to verifying prioritization, a concept that will be explained in the following paragraphs.

1.3 Flashblock and Verifiable Block Construction

The average block time on Ethereum is 12 seconds, which is very slow and does not meet today's demands for an acceptable trading experience. Additionally, slow block times expose the network to more MEV opportunities and make it vulnerable to network congestion under spam attacks.

L2 aims to improve Ethereum's scalability by bundling off-chain transactions and submitting proofs to verify computational correctness. To provide a smoother trading experience, Unichain aims to achieve a block time of 250ms. However, to achieve this, Unichain needs a system that can continuously transmit blocks with low latency and near-instant confirmation times. Solana can process 440M in parallel, but a certain degree of decentralization is sacrificed to achieve such speeds.

Previously, in most L2 block proposal processes, the serialization of data and state root generation incurred delays, making fast block times infeasible.

To solve this problem, flashbot created flashblock, with the idea of ​​"breaking" blocks into smaller shards, thereby reducing the time between blocks to maximize UX/LP advantages.

Flashblock is a pre-confirmation issued by a TEE block builder for partial but fast confirmation.

First, transactions are streamed into the TEE block builder. If L2 has SBS enabled, the block builder will be decoupled from the sorter. After being sorted and bundled, transactions will gradually form partial confirmations called Flashblocks. Flashblocks will be broadcast from the sorter to other nodes every 250 milliseconds for verification.

Since latency is caused by state root generation and serialization in L2, Unichain amortizes the cost of the block building process by calculating state roots and consensus only once for multiple partial blocks, which greatly reduces latency.

In short, Flashblocks are powerful because:

• Shorter block times reduce the risk of adverse selection costs for LPs.

• Flashblocks provide early execution status of existing states, making wallet and front-end integration easier.

• Fast transactions provide excellent user experience (UX).

Furthermore, because TEEs can enforce prioritization in every Flashblock, applications and smart contracts can now impose MEV taxes, hijack prioritization for their own benefit, and redistribute MEV to LPs and users.

As Dan Robinson emphasized in his tweet, allowing applications and users to "control" their MEV is one of the main functions/purposes of Unichain.

Even better, prioritization can be verified through public execution proofs in the TEE. This allows users to verify exactly how their transactions were executed. This is very important because it is the only way for users to ensure that prioritization was performed fairly.

1.4 Unichain Verification Network (UVN)

Today, most L2 sorters are centralized, and the behavior of a single sorter can affect the fairness of MEV, the liveness or finality of blocks, etc. For example, if a sorter publishes an invalid block, and a fraud proof is submitted to challenge it, the resulting chain reversal can actually affect the speed of the chain.

To deal with potential single points of failure in the sorter, Unichain introduced the Unichain Verification Network (UVN).

UVN adds an additional layer of finality by focusing on validators who prove the canonical chain (Ethereum) when proposing a block. This process is actually similar to parallelization, where different stages of block construction can occur simultaneously in an epoch.

However, without further details in the documentation, it is too early to make assumptions about the pros and cons.

1.5 The $UNI Token

The $Uni token is now more than just a governance token, it is also a utility token.

To become a validator, an operator must first stake $Uni as collateral on the mainnet. The smart contract will track the balance and update the state via Unichain’s native bridge.

At the beginning of each epoch, the current staked balance is snapshotted and fees are distributed proportionally to the staked weight. Validators with the highest $UNI staked weight will be selected as the active set and they can publish attestations to earn a portion of the validation rewards. Validators who miss or do not publish attestations will not receive rewards, and rewards will be rolled over to the next epoch.

Based on limited public information, we can infer that the validation rewards will be:

(L2 fees paid by Unichain users - MEV tax levied by applications - cost of submitting bundles to Layer 1)

2. Unichain vs Appchain vs General Rollup

• The main differentiating factors between Unichain/General Rollup and Appchain are MEV, pre-confirmation, and block space competition.

• Since application chains can flexibly customize their architecture, they can implement different MEV mechanisms to mitigate issues such as eliminating censorship risks or reducing MEV leakage.

• At the same time, due to the integrity properties provided by TEE, Unichain mitigates and reorganizes MEV by ensuring that the order of transactions is not affected by any third party. Verifiable priority sorting also ensures MEV fairness and has the potential to redistribute MEV revenue to users and liquidity providers.

• Most sorters on the market are centralized, allowing them to extract maximum value from order flow. In contrast, Unichain takes a more "public interest" approach because its MEV redistribution mechanism limits the amount of MEV that the original sorter can capture to a certain extent.

• Unichain is built on OpStack, a unified standard for optimistic chains, which enables Unichain to read messages and transfer assets on superchains through secure messaging, thereby achieving low latency (about 2 seconds) through its native optimistic interoperability design. On the other hand, application chains can take advantage of different interoperability solutions, such as joining the IBC ecosystem or building L3 on Arbitrum Orbit (although this is not common for OpStack's L2).

3. Conclusion

Unichain is an interesting concept that not only provides users with a smooth transaction experience with pre-confirmation, but also minimizes the utilization window of MEV due to the shorter block time enabled by flashblcoks. This innovation also reduces the risk of adverse selection of LPs and benefits users/LPs from lower slippage, etc.

On the other hand, the integrity and privacy properties of the Trusted Execution Environment (TEE) ensure that users on the chain can enjoy guaranteed transactions with fair, verifiable or application-managed MEV redistribution, thanks to the priority ordering on Unichain.

Unichain's validation process also protects sequencers from single points of failure. Validators play an important role in quickly and finally validating blocks while turning $Uni tokens into productive assets with yields.

However, by enabling MEV redistribution, sequencers actually lose the potential to capture the maximum amount of MEV, but more of the yield is returning to LPs/users on the chain.

While some may argue that Unichain may not be attractive enough for assets to migrate to new chains, I believe that as the L2 ecosystem continues to develop, interoperability between operating chains will enable Unichain to tap into larger liquidity pools, such as those from Base.

In addition, in addition to Grant (which Unichain can also provide in the form of USDC after Uniswap DAO), new DeFi Apps have enough motivation to build on Unichain because they can benefit from customized MEV redistribution strategies. At the same time, assets within the ecosystem can benefit from TEE to mitigate MEV leakage.

Therefore, with its speed, the fairness of MEV redistribution, and the interoperability that the chain may provide, Unichain has the potential to become the next center of DeFi.