By Roland Roventa, Head of Investments at Mechanism Capital

Trump’s victory has sparked a DeFi renaissance, and Ethereum (which accounts for 63% of the global DeFi total locked) is poised to capitalize on this momentum and breakout. Since the results of the US presidential election, the Ethereum ecosystem has continued to outperform expectations.

However, Ethereum’s rollup-based scaling path, while critical to scaling, faces a significant challenge: fragmentation. The current rollup ecosystem is in a winner-take-all situation, resulting in liquidity, user attention, and user base being dispersed across isolated L2 chains. To fully tap the potential of DeFi’s resurgence, Ethereum must resolve these divisive dynamics, and Ethereum needs to resolve the current fragmentation and build a more unified and open network.

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

Puffer Finance’s innovative solution – UniFi, directly addresses Ethereum’s fragmentation challenge. We believe that once the market recognizes that Puffer is not just another Liquid Heavy Staking Token (LRT), but an innovative infrastructure solution, it will outperform expectations.

Puffer’s Past: Puffer started as a leading LRT protocol focused on providing decentralized staking solutions.

Puffer’s Present: Puffer has evolved into a unified solution centered on Ethereum. Puffer has evolved from the first native liquid re-staking protocol to a comprehensive Ethereum integrated and extended ecosystem, consisting of the following three core components:

· Decentralized Liquid Re-staking Protocol (LRT)

Puffer's flagship product, with anti-slashing features, high yield and security, supporting decentralized re-staking in the Ethereum ecosystem.

· UniFi Based Rollup Stack

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

· UniFi Pre-confirmed AVS

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

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

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

What are based roll-ups?

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

"Based rollup, that is, L1-ordered rollup, means that its order is driven by the underlying L1. Specifically, based rollup means that the next L1 proposer can cooperate with L1 searchers and builders to include the next rollup block in the next L1 block without permission." - Justin Drake

For people with a non-technical background, the above description may seem complicated. In short, the main chain-based rollup verifies transactions directly on L1, giving full play to the efficiency of Ethereum's existing mechanisms. In contrast, other common rollup schemes (such as optimistic & ZK) usually verify transactions on L2 before submitting them to L1.

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

· Inheriting the liveness and decentralization characteristics of the Ethereum network: reliability is ensured and it is not affected by single points of failure.

· Simplified infrastructure: no need to run a separate sorter.

· Faster execution speed: faster transaction finality through pre-confirmation (more on this later).

· Aligned with the economic interests of L1: new revenue opportunities are created for existing validators through non-invading MEV (maximum extractable value).

· Reduced operating costs: because transaction sorting is the responsibility of L1.

Based Rollups > Optimistic Rollups

tl’dr:

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

Puffer is Based

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

It solves the problem of Ethereum liquidity fragmentation by achieving synchronous composability. Transactions on UniFi can interact directly with other based rollups without bridging, creating a unified liquidity and application layer. Developers can easily launch their own application 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 interact smoothly and integrated within a single Ethereum block. For example, a user or protocol can deposit assets from L1 to UniFi, perform complex operations such as swaps or liquidity mining, and then withdraw assets back to L1 within the same 12-second Ethereum block. This is not only fast, but also a breakthrough in blockchain interoperability.

Puffer is not competing with L1, but collaborating with L1 to expand its capabilities in an integrated way.

How it works?

Inspired by research in collaboration with Justin Drake, Puffer UniFi uses 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 improve interoperability. Once zero-knowledge proof (ZK proof) technology reaches sufficient speed, provers will be able to move from relying on trusted hardware to a completely zero-knowledge-based solution.

Puffer UniFi's Architecture Analysis

Architecture Overview - Puffer's UniFi Pre-Confirmation AVS provides users with L2 execution confirmation services. Users can experience sub-second transaction speeds when interacting through UniFi. In UniFi Universal Rollup, native revenue 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). Rollups focus on the functions of the execution layer.

This is what makes the Puffer app-chain unique.

Why is this important?

Puffer is building its own app-chain using based rollups, which enables seamless integration of the EVM protocol. This provides everyone in the ecosystem with the opportunity to participate and benefit, whether individual validators or large dApps, can benefit from a faster, more efficient, and more decentralized Ethereum. Ethereum's fragmentation problem has existed for too long, and now is the time to change this status quo.

Ecosystem Overview

Growth will occur in phases:

Phase 1: Puffer will introduce based rollups to users and developers. For protocols that are not yet ready to run their own application chain, they can be deployed directly to UniFi.

Phase 2: UniFi will launch an SDK that enables any dApp developer to quickly build and deploy their own application chain in a simplified way.

Part 2: UniFi Pre-confirmation AVS

UniFi provides near-instant execution confirmation through pre-confirmation technology. This is not just a speed improvement, but a new Ethereum scalability solution. Pre-confirmation technology solves Ethereum's fragmentation problem while providing extremely fast transaction confirmation.

How is it implemented? As Ethereum's 12-second block time limits the finality of fast transactions, preconfirmations become critical to improving the user experience. To address this issue, Puffer has developed a proprietary preconfirmation AVS technology that provides near-instant (about 100 milliseconds) transaction confirmation guarantees, ensuring that the transaction will be included in the next block. This innovation greatly improves the speed and reliability of the based rollup ecosystem.

How does it work?

Preconfirmations are divided into two types: execution preconfirmations and inclusion preconfirmations. Both can be used to provide users with faster transaction confirmations on L1 or L2: The advantage of execution preconfirmations is that they provide users with a final and guaranteed commitment, including confirmation of the status after the transaction is executed. For example, it can confirm the price of the transaction execution, thereby significantly improving the user experience.

It is challenging to implement L1 execution preconfirmation; however, L2 execution preconfirmation effectively solves this problem. Puffer UniFi AVS uses this capability to provide a more optimized user experience.

Preconfirmation Guarantee Mechanism: Preconfirmation represents a promise made by the proposer (validator or delegated proposer) to the user. If this promise cannot be fulfilled, there should be a penalty, such as slashing. Restaking protocols like EigenLayer play an important role in providing slashing guarantees for preconfirmation. It is worth noting that Puffer UniFi Preconfirmation AVS is the first service of its kind to run on EigenLayer.

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

UniFi's synchronous composability is a disruptive innovation. Interactions across Rollups are like operating on a unified chain, without the need for L2 bridges (which no one likes), reducing costs and mitigating security risks associated with asset transfers. UniFi's approach unifies liquidity, enabling developers and users to interact seamlessly across chains, improving Ethereum's liquidity and user experience like never before.

What it means to developers: UniFi provides developers with a unique opportunity to scale applications in a unified and low-friction environment. By eliminating centralized sorters, UniFi significantly reduces operating costs, allowing developers to focus on the product itself without having to worry about the complexity of applying isolated L2s. In addition, UniFi's architecture makes the deployment of based rollups almost as simple as deploying smart contracts, greatly lowering the barrier to entry for developers and encouraging innovation.

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

All revenue streams translate into revenue for the Reserve, governed by the $PUFFER token.

Puffer’s upgraded revenue model (note, not just an LRT) leverages based rollups and pre-confirmations to create sustainable value within the Ethereum ecosystem. Through based rollups, Puffer generates ordering fees, which is enabled by the mechanism that allows Ethereum validators to manage transaction ordering. UniFi enables seamless interoperability between not only Ethereum L1 and L2, but also L2, unifying liquidity and composability. By integrating ordering fees into the Ethereum validator network, Puffer captures transaction-based revenue while reinforcing the value of Ethereum’s native economy.

Users can also pay preconfirmation tips to have their transactions processed first. This provides Puffer with an additional revenue stream, forming a diversified revenue stream alongside transaction inclusion fees. These fees and tips will be pumped back into the Puffer ecosystem, further enriching the value of its native tokens pufETH and unifiETH, while providing additional revenue to token holders.

As Puffer core contributor Amir explains:

“If every user pays a premium for these preconfirmations to ensure faster and more reliable transactions on Ethereum, then AVS becomes closely tied to every transaction a user makes on Ethereum. This builds a very powerful, efficient revenue-generating AVS that can steadily output organic revenue.”

About vePuffer

One of the key factors that enables a protocol to achieve sustainable long-term price growth is tokenomics. A good protocol must have a well-designed token model that focuses on creating value for long-term holders. At Mechanism Capital, we focus on token economics design 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 pass value to token holders and align incentives across the ecosystem. To do this, they are introducing the following innovations:

Decentralized Governance:

vePUFFER enables the community to participate in voting on the allocation of PUFFER points, in line with Puffer's goal of decentralization.

Tradable Points:

The second season of ERC20 PUFFER points supports trading, and users can obtain early returns or make additional purchases through trading, which increases 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.

Bribe Market:

The protocol can provide incentives to vePUFFER holders to increase the number of votes in their pools, thereby improving APR and liquidity.

Competing Protocols:

Bribery allows protocols to attract votes to increase APR, driving user participation and creating aligned incentives.

Community-Driven Rewards:

The vePUFFER model supports governance, speculation, and diverse strategies, empowering users to shape the incentives of the ecosystem.

Why Puffer’s UniFi is Unique: Reshaping Ethereum’s Rollup Landscape

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

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

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