Puffer Finance: Based Rollups will help with the integration of ETH network

Author: Roland Roventa

Trump’s victory has sparked a revival wave in DeFi, giving Ethereum (which accounts for 63% of the global DeFi total locked value) the potential to make a breakthrough on this momentum. Since the announcement of the U.S. presidential election results, the Ethereum ecosystem has consistently outperformed expectations.

However, the rollup-based scalability route of Ethereum, while crucial for scaling, faces a significant challenge: fragmentation.

The current rollup ecosystem is in a winner-takes-all state, leading to liquidity, user attention, and user communities being dispersed across isolated L2 chains.

To fully tap into the potential of the DeFi resurgence, Ethereum must address these divisive dynamics and build a more unified and open network by resolving its current fragmentation issues.

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

Puffer Finance’s innovative solution - UniFi, directly tackles the fragmented challenges of Ethereum. We believe that once the market realizes that Puffer is not just another liquidity-weighted staking token (LRT), but an innovative infrastructure solution, its performance will exceed expectations.

Puffer’s past: Puffer was originally a leading LRT protocol focused on providing decentralized staking solutions.

Puffer’s present: Puffer has now evolved into an Ethereum-centered unified solution. Puffer has developed from the first native liquid staking protocol into a comprehensive Ethereum-integrated and expanded ecosystem, consisting of the following three core components.

Decentralized Liquidity Recollateralization Protocol (LRT)

Puffer’s flagship product, with anti-reduction features, provides high returns and security, supports decentralized heavy staking in 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-confirmed AVS provides almost instant transaction finality for L1 and L2 transactions, greatly improving the speed and reliability of the Ethereum network.

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

Part 1 Puffer UniFi Based Roll-up Stack - What is it? How does it work?

What are based roll-ups?

Based rollups are an advanced scaling solution that integrates directly with Ethereum’s shared sequencer, without relying on other L2 solutions that commonly use centralized sequencers (such as optimistic or zero-knowledge proof L2). The core idea was first proposed by Justin Drake in a research paper in March 2023.

“Based rollup, also known as L1-ordered rollup, refers to its ordering being driven by the underlying L1. Specifically, based rollup refers to the next L1 proposer being able to collaborate with L1 searchers and builders to include the next rollup block in the next L1 block without permission.” - Justin Drake

For non-technical people, the above description may seem complex. Simply put, the aggregation based on the main chain directly verifies transactions on L1, fully leveraging the efficiency of the existing Ethereum mechanism. In contrast, other common aggregation schemes (such as optimistic & ZK) usually verify transactions on L2 first and then submit them to L1.

By sorting based on (using Ethereum L1 validators for sorting), the following advantages can be obtained:

Inheriting the activity and decentralization of the Ethereum network: ensuring reliability, unaffected by single points of failure.

Simplified infrastructure: no need to run a separate sorter.

Faster execution speed: Achieve faster transaction finality through pre-confirmation (will be explained in detail later).

Aligned with the economic interests of L1: creating new revenue opportunities for existing validators through non-invasive MEV (Maximal Extractable Value).

Reduce operating costs: because transaction sorting is handled by L1.

Based Rollups > Optimistic Rollups

tl’dr:

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

Puffer is Based

Puffer UniFi is an Ethereum-based rollup that enables the creation of application chains through its technical stack.

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

UniFi’s goal is 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 into UniFi, perform complex operations (such as exchange or liquidity mining), and then withdraw the assets back to L1 within the same 12-second Ethereum block. This is not only fast, but also a major breakthrough in blockchain interoperability.

Puffer is not competing with L1, but collaborating with L1 to extend its functionality in an integrated manner.

How does it work?

Inspired by collaboration with Justin Drake, Puffer UniFi adopts 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 (ZKP) technology reaches sufficient speed, the prover will be able to transition from relying on trusted hardware to a fully zero-knowledge-based solution.

Analysis of Puffer UniFi’s architecture

Architecture Overview - Puffer’s UniFi pre-confirmed AVS provides users with L2 execution confirmation services. Users can experience millisecond-level transaction speeds when interacting through UniFi. In the UniFi general Rollup, native yield tokens can be used as fuel (Gas) tokens.

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

This is exactly what sets Puffer app-chain apart.

Why is this important?

Puffer is building its own app-chain using based rollups to seamlessly integrate the EVM protocol. This provides an opportunity for everyone in the ecosystem to participate and benefit, whether they are individual validators or large dApps, they can benefit from a faster, more efficient, and more decentralized Ethereum. The fragmentation problem of Ethereum has existed for too long, and now is the time to change this situation.

Ecological System Overview

Growth will be phased:

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

Phase 2: UniFi will launch the SDK, enabling any dApp developer to quickly build and deploy their own application chain in a simplified manner.

Part Two: UniFi Pre-Confirm AVS

UniFi provides near-instant execution confirmation through preconf technology. This is not just a speed improvement, but a new Ethereum scalability solution. Preconf technology solves the fragmentation problem of Ethereum and provides extremely fast transaction confirmation.

How to achieve it? Due to Ethereum’s 12-second block time limit, which limits the finality of fast transactions, preconfirmation (preconf) becomes crucial for improving user experience. To address this issue, Puffer has developed a proprietary preconfirmation AVS technology, which provides nearly instant (around 100 milliseconds) transaction confirmation guarantee, ensuring that transactions will be included in the next block. This innovation greatly enhances the speed and reliability of the based rollup ecosystem.

If it works?

Preconfs are divided into two types: Execution Preconf and Inclusion Preconf. Both can be used to provide faster transaction confirmation for users on L1 or L2. The advantage of Execution Preconf is to provide users with final and guaranteed commitments, including confirming the state after transaction execution. For example, it can confirm the price of transaction execution, significantly improving user experience.

Implementing execution pre-confirmation for L1 is challenging; however, execution pre-confirmation for L2 effectively solves this problem. Puffer UniFi AVS leverages this capability to provide a more optimized user experience.

Pre-confirmation security mechanism: Pre-confirmation represents the commitment of the proposer (validator or authorized proposer) to the user. If this commitment cannot be fulfilled, it should be punished, such as slashing. Re-staking protocols like EigenLayer play an important role in providing slashing guarantees for pre-confirmation. It is worth noting that Puffer UniFi’s pre-confirmation AVS is the first similar service running on EigenLayer.

Puffer UniFi: Catalyst for the Next Chapter of Ethereum - Unification

UniFi’s composability across sync is a disruptive innovation. Interactions across Rollups are like operating on a unified chain without the need for L2 bridges (which nobody likes). This reduces costs and mitigates security risks associated with asset transfers. UniFi’s approach achieves liquidity unification, enabling seamless interactions between developers and users across chains, significantly enhancing Ethereum’s liquidity and user experience.

The significance for developers: UniFi provides developers with a unique opportunity to expand their applications in a unified and low-friction environment. By eliminating centralized sequencers, UniFi significantly reduces operating costs, allowing developers to focus on the product itself without worrying about the complexity of L2 application isolation. In addition, UniFi’s architecture makes the deployment of based rollups almost as simple as deploying smart contracts, greatly reducing the entry barrier for developers and encouraging innovation.

Income gains: How Puffer’s Based Rollups and pre-commitments drive value in the Ethereum ecosystem

All income sources will be converted into the income of the fund reserve, governed by the $PUFFER token.

The upgraded revenue model of Puffer (note that it is not just an LRT) fully utilizes based rollups and pre-confirmation technology to create sustainable value within the Ethereum ecosystem. Through based rollups, Puffer generates sorting fees, benefiting from the mechanism that allows Ethereum validators to manage transaction sorting. UniFi not only supports seamless interoperability between Ethereum L1 and L2, but also supports interoperability between L2, achieving the unity of liquidity and composability. By integrating sorting fees into the Ethereum validator network, Puffer captures transaction-based revenue while strengthening the value of the Ethereum native economy.

Users can also pay preconfirmation tips to prioritize their transactions. This provides Puffer with an additional source of income, diversifying revenue along with transaction inclusion fees. These fees and tips will be reinjected into Puffer’s ecosystem, further enriching the value of its native tokens pufETH and unifiETH, while providing additional income for token holders.

As explained by Amir, a key contributor to the Puffer core:

If each user pays extra fees for these pre-confirmed payments to ensure faster and more reliable transactions on Ethereum, AVS will be closely associated with each transaction on Ethereum. This builds a very powerful and efficient revenue-generating AVS that can stably generate organic income.

About vePuffer

One of the key factors that enables a protocol to achieve sustainable long-term price growth is tokenomics. An excellent protocol must have a carefully designed token model that focuses on creating value for long-term holders. At Mechanism Capital, we place a core emphasis on the design of token economics and support teams that can innovate and maximize token value capture.

Puffer Finance is launching vePuffer as an update to token economics. Its goal is to deliver value to token holders and align incentive mechanisms throughout the ecosystem. To achieve this, they introduce the following innovations:

Decentralized Governance:

vePUFFER enables the community to participate in the allocation voting of PUFFER points, in line with Puffer’s decentralization goals.

Tradeable points:

The second season of ERC20 PUFFER points supports trading, and users can obtain early returns or make additional purchases through trading, thereby increasing flexibility and arbitrage potential.

Flexible Strategies:

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

Market manipulation:

The protocol can incentivize vePUFFER holders to increase the voting power of their pools, thereby increasing the APR and liquidity.

Competitive Agreement:

The bribery mechanism allows the protocol to attract votes to increase APR, promote user participation, and create a consistent incentive mechanism.

Community-driven reward mechanism:

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

Why Puffer’s UniFi is unique: Reshaping the Ethereum Rollup landscape

By introducing UniFi, Puffer creates an opportunity for Ethereum to transition from a fragmented Rollup environment to a unified and positive ecosystem. This ecosystem brings developers, users, and liquidity together in unprecedented ways. The end result? A more powerful and resilient Ethereum that can meet the needs of billions of users.

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