Based Rollup empowers Ethereum integration, how does Puffer drive the next chapter of Ethereum?

Author: Roland Roventa

Trump's victory has sparked a resurgence in DeFi, positioning Ethereum (which accounts for 63% of the total locked value in global DeFi) to potentially break through with this momentum. Since the announcement of the U.S. presidential election results, the Ethereum ecosystem has consistently outperformed expectations.

However, despite the critical importance of Ethereum's rollup-based scaling approach, it faces a significant challenge: fragmentation. The current rollup ecosystem is in a winner-takes-all state, leading to liquidity, user attention, and user bases being scattered across isolated L2 chains. To fully harness the potential of DeFi's resurgence, Ethereum must address these fragmentation dynamics and build a more unified and open network.

Bridging the Gap: Addressing Ethereum's Fragmentation and Liquidity Challenges

Puffer Finance's innovative solution—UniFi—directly tackles Ethereum's fragmentation challenge. We believe that once the market recognizes Puffer as not just another liquid re-staking token (LRT), but as an innovative infrastructure solution, its performance will exceed expectations.

Puffer's Past: Puffer was initially a leading LRT protocol focused on providing decentralized staking solutions.

Puffer's Present: Puffer has now evolved into a unified solution centered around Ethereum. Puffer has transitioned from the first native liquid re-staking protocol to a comprehensive Ethereum-integrated scaling ecosystem, consisting of three core components:

• Decentralized Liquid Re-staking Protocol (LRT)

Puffer's flagship product, featuring anti-slashing characteristics, providing high yields and security, supporting decentralized re-staking within the Ethereum ecosystem.

• UniFi Based Rollup Stack

An L2-based serialization solution that enables seamless interaction between L2<>L2 and L2<>L1, supporting efficient cross-chain atomic composability.

• UniFi Pre-confirmation AVS

The industry's first pre-confirmation AVS, providing near-instant transaction finality for L1 and L2 transactions, significantly enhancing the speed and reliability of the Ethereum network.

Through the UniFi-based rollup stack, Puffer Finance transforms Ethereum's fragmentation into a positive-sum ecosystem.

Part One: What is Puffer UniFi Based Roll-up Stack? How Does It Work?

What are based roll-ups?

Based rollups are an advanced scaling method that integrates directly with Ethereum's shared sequencer, without relying on the centralized sequencers commonly used by other L2s (such as optimistic or zero-knowledge proof L2s). The core idea was first proposed by Justin Drake in a research paper in March 2023:

"Based rollup, or L1-sequenced rollup, refers to a rollup whose sequencing is driven by the underlying L1. Specifically, a based rollup means that the next L1 proposer can collaborate with L1 seekers and builders to include the next rollup block in the next L1 block without permission." - Justin Drake

For those without a technical background, the above description may seem complex. In simple terms, based rollups validate transactions directly on L1, fully leveraging the efficiency of Ethereum's existing mechanisms. In contrast, other common rollup solutions (like optimistic & ZK) typically validate transactions on L2 first before submitting them to L1.

By utilizing based sequencing (using Ethereum L1 validators for sequencing), the following advantages can be achieved:

• Inherits the activity and decentralization of the Ethereum network: Ensuring reliability, unaffected by single points of failure.
• Simplified infrastructure: No need to run independent sequencers.
• Faster execution speed: Achieving quicker transaction finality through pre-confirmation (to be detailed later).
• Economic alignment with L1: Creating new revenue opportunities for existing validators through non-extractive MEV (maximum extractable value).
• Reduced operational costs: As transaction sequencing is handled by L1.

Based Rollups > Optimistic Rollups

By optimizing the underlying transaction sequencing process, costs can be reduced, speed increased, while retaining the inherent security and decentralization of the Ethereum network.

Puffer is Based

Puffer UniFi is a based rollup on Ethereum, enabling the creation of application chains through its tech stack.

It addresses Ethereum's liquidity fragmentation issue by implementing synchronous composability. Transactions on UniFi can directly interact with other based rollups without the need for bridging, thus creating a unified liquidity and application layer. Developers can easily launch their own application chains, capture transaction fees, and leverage shared liquidity.

UniFi aims to bring atomic composability to the Ethereum chain—redefining the possibilities of on-chain interactions. Through atomic composability, UniFi will allow Layer 1 and Layer 2 to achieve smooth, integrated interactions within a single Ethereum block. For example, users or protocols can deposit assets from L1 to UniFi, execute complex operations (like swaps or liquidity mining), and then withdraw assets back to L1 within the same 12-second Ethereum block. This is not only fast but represents a significant breakthrough in blockchain interoperability.

Puffer does not compete with L1; rather, it collaborates with L1 to expand its capabilities in an integrated manner.

How Does It Work?

Inspired by collaborative research with Justin Drake, Puffer UniFi employs Trusted Execution Environments (TEEs) in its processing stack. To achieve real-time proofs, Puffer plans to use TEEs as a temporary auxiliary tool. The implementation of real-time proofs can significantly enhance interoperability. Once zero-knowledge proof (ZK proof) technology reaches sufficient speed, provers will be able to shift from relying on trusted hardware to fully zero-knowledge-based solutions.

Architecture Analysis of Puffer UniFi

Architecture Overview - Puffer's UniFi pre-confirmation AVS provides users with L2 execution confirmation services. Users interacting through UniFi can experience sub-second transaction speeds. In the UniFi general Rollup, native yield tokens can be used as gas tokens.

The consensus layer, data availability layer, and settlement layer are all handled by the underlying layer (Layer 1, i.e., Ethereum). The Rollup focuses on the functionality of the execution layer.

This is precisely what makes Puffer's application chain (app-chain) unique.

Why Is This Important?

Puffer is leveraging based rollups to build its own application chain (app-chain), achieving seamless integration of EVM protocols. This provides opportunities for everyone in the ecosystem to participate and benefit, whether individual validators or large dApps, all can gain from a faster, more efficient, and more decentralized Ethereum. The fragmentation issue of Ethereum has persisted for too long, and it is time to change this status quo.

Ecosystem Overview

Growth will occur in phases:

Phase One: Puffer will introduce based rollups to users and developers. For protocols not yet ready to run their own application chains, they can directly deploy on UniFi.

Phase Two: UniFi will launch an SDK, enabling any dApp developer to quickly build and deploy their own application chains in a simplified manner.

Part Two: UniFi Pre-confirmation AVS

UniFi provides near-instant execution confirmation through pre-confirmation (preconf) technology. This is not just a speed enhancement but a new Ethereum scalability solution. The pre-confirmation technology addresses Ethereum's fragmentation issue while providing extremely fast transaction confirmations.

How is this achieved? Due to Ethereum's 12-second block time limiting the finality of fast transactions, pre-confirmation (preconf) becomes crucial for enhancing user experience. To address this, Puffer has developed a proprietary pre-confirmation AVS technology that provides near-instant (approximately 100 milliseconds) transaction confirmation guarantees, ensuring that transactions will be included in the next block. This innovation significantly enhances the speed and reliability of the based rollup ecosystem.

How Does It Work?

Pre-confirmations (preconfs) are divided into two types: Execution Pre-confirmation and Inclusion Pre-confirmation. Both can be used to provide users with faster transaction confirmations on L1 or L2: Execution Pre-confirmation offers users a final and guaranteed commitment, including confirmation of the state after transaction execution. For example, it can confirm the price at which a transaction was executed, significantly enhancing user experience.

Achieving execution pre-confirmation on L1 poses certain challenges; however, execution pre-confirmation on L2 effectively addresses this issue. Puffer UniFi AVS leverages this capability to provide a more optimized user experience.

Pre-confirmation Guarantee Mechanism: Pre-confirmation represents the proposer's (validator or authorized proposer) commitment to the user. If this commitment cannot be fulfilled, penalties should be imposed, such as slashing. Re-staking protocols like EigenLayer play a crucial role in providing slashing guarantees for pre-confirmation. Notably, Puffer UniFi pre-confirmation AVS is the first of its kind to operate on EigenLayer.

Puffer UniFi: The Catalyst for Ethereum's Next Chapter—Unification

The synchronous composability of UniFi is a disruptive innovation. Cross-Rollup interactions operate as if on a unified chain, eliminating the need for L2 bridges (which everyone dislikes), thereby reducing costs and alleviating security risks associated with asset transfers. UniFi's approach achieves liquidity unification, enabling developers and users to interact seamlessly across chains, significantly enhancing Ethereum's liquidity and user experience.

Implications for Developers: UniFi provides developers with a unique opportunity to scale applications in a unified and low-friction environment. By eliminating centralized sequencers, UniFi drastically reduces operational costs, allowing developers to focus on the product itself without worrying about the complexities of isolated L2s. Furthermore, UniFi's architecture makes deploying based rollups nearly as simple as deploying smart contracts, greatly lowering the entry barrier for developers and encouraging innovation.

Revenue Gains: How Puffer's Based Rollups and Pre-confirmations Drive Value in the Ethereum Ecosystem

All revenue sources will convert into earnings for the treasury, governed by the $PUFFER token.

Puffer's upgraded revenue model (note that it is not just an LRT) fully leverages based rollups and pre-confirmation technology to create sustainable value within the Ethereum ecosystem. Through based rollups, Puffer generates sequencing fees, thanks to the mechanism that allows Ethereum validators to manage transaction sequencing. UniFi not only supports seamless interoperability between Ethereum L1 and L2 but also between L2s, achieving a unification of liquidity and composability. By integrating sequencing fees into the Ethereum validator network, Puffer captures transaction-based revenue while reinforcing the value of Ethereum's native economy.

Users can also pay pre-confirmation tips to prioritize their transactions. This provides Puffer with an additional revenue source, forming a diversified income stream alongside transaction inclusion fees. These fees and tips will be reinvested into Puffer's ecosystem, further enriching the value of its native tokens pufETH and unifiETH, while providing additional returns for token holders.

As Puffer core contributor Amir explained:

"If every user pays extra for these pre-confirmations to ensure faster and more reliable transactions on Ethereum, then the AVS will be closely tied to every transaction users make on Ethereum. This builds a very powerful, efficient revenue-generating AVS capable of delivering stable organic returns."

About vePuffer

One of the key factors for achieving sustainable long-term price growth for the protocol is tokenomics. An excellent protocol must have a well-designed token model focused on creating value for long-term holders. At Mechanism Capital, we focus on tokenomics design, supporting teams that can innovate and maximize token value capture.

Puffer Finance is launching vePuffer as an update to its tokenomics. Its goal is to deliver value to token holders and align incentive mechanisms throughout the ecosystem. To this end, they are introducing the following innovations:

Decentralized Governance:

vePUFFER enables the community to participate in voting for the allocation of PUFFER points, aligning with Puffer's decentralization goals.

Tradable Points:

ERC20 PUFFER points for the second season are tradable, allowing users to trade for early returns or make additional purchases, increasing flexibility and arbitrage potential.

Flexible Strategies:

Tradable points allow users to decide to hold, sell, or buy based on personal strategies and market sentiment, enhancing risk management capabilities.

Bribery Market:

Protocols can incentivize vePUFFER holders to increase their pool's voting power, thereby enhancing APR and liquidity.

Competitive Protocols:

The bribery mechanism allows protocols to attract votes to enhance APR, encouraging user participation and creating aligned incentive mechanisms.

Community-Driven Reward Mechanism:

The vePUFFER model supports governance, speculation, and diversified strategies, empowering users to shape the incentive mechanisms of the ecosystem.

Why Puffer's UniFi Stands Out: Redefining Ethereum's Rollup Landscape

By launching UniFi, Puffer creates an opportunity for Ethereum to transition from a fragmented Rollup environment to a unified, positive-sum ecosystem. This ecosystem brings together developers, users, and liquidity in unprecedented ways. The end result? A stronger, more resilient Ethereum capable of meeting the needs of billions of users.

Disclaimer: The content of this article does not constitute any investment advice.