What Is Unichain — And How Does It Relate to Uniswap?
Launched in November 2018, Uniswap (UNI) is one of the blockchain industry's earliest and largest decentralized finance (DeFi) platforms. Having pioneered the concepts of the automated market maker (AMM) and liquidity pool, Uniswap has long held the pole position among decentralized exchanges (DEXs) by total value locked (TVL) and trading activity.
Despite these pioneering achievements, Uniswap, just as every other Ethereum (ETH)–based DeFi app, has faced its fair share of issues. Most of these are attributable to Ethereum's network congestion, limited scalability, high transaction costs and less-than-optimal block validation schedule.
Through the years of supporting Uniswap, the Uniswap Labs team has gained vast experience in Ethereum-based DeFi. They’ve put all the insight and lessons learned into Unichain, a solution aimed at replicating Uniswap's success.
In late 2024, Uniswap Labs made a pivotal move by introducing Unichain, a DeFi-focused Layer 2 network that aims to address the drawbacks of transacting directly on Ethereum. In testnet mode as of early November 2024, Unichain offers a plethora of advantages over Ethereum, including low transaction costs, cross-chain interoperability, one-second block times and a trusted execution environment that improves the transparency of transaction ordering.
Key Takeaways:
Unichain, launched by Uniswap Labs, is a highly scalable and low-cost Layer 2 optimistic rollup for Ethereum.
Unichain boasts a 95% reduction in gas fees along with block processing intervals that are 12 times faster than those on Ethereum.
As of early November 2024, Unichain is in testnet mode, with plans to release its mainnet in the near future.
What Is Unichain?
Unichain is a highly scalable and low-cost Layer 2 blockchain network designed for DeFi use cases. Launched by Uniswap's developer, Uniswap Labs, the Unichain platform features low transaction costs, great scalability, cross-chain interoperability, secure and transparent block validation procedures and one-second block confirmation times.
Built using the popular Layer 2 development framework OP Stack, Unichain is an optimistic rollup solution that features Ethereum virtual machine (EVM) compatibility. Unichain also features underlying OP Stack technology, making it a member of the Optimism Superchain, a network of optimistic rollup platforms based on this technology. As part of the Superchain, Unichain boasts smooth interoperability with the other networks in this ecosystem.
Unichain's testnet was launched in early October 2024, with the mainnet promised to be "coming soon" as of the time of this writing (Nov 4, 2024).
Why Was Unichain Launched?
The primary motivation behind launching Unichain can be found in Ethereum's never-ending scalability and cost issues. In September 2022, the Ethereum blockchain migrated from its original proof of work (PoW) block validation model to the much more efficient proof of stake (PoS) via The Merge, which was widely publicized until its eventual implementation. Some hoped this move would reduce costs and the speed of transacting on the chain, both of which had been major drawbacks of Ethereum's Layer 1 blockchain. However, The Merge has not resulted in meaningful reductions in either costs or speed.
As of late 2024, Ethereum users continue to encounter high fees and limited scalability, mainly due to high network demand. These limitations are particularly detrimental to DeFi apps, including the Uniswap DEX. Ethereum’s block production interval of 12 seconds may not seem slow. However, slippage is increased due to the delay between swap order placement and transaction finalization on its chain, and high gas fees make coin swaps and other DeFi operations expensive, leading to significant losses for traders. In addition, slow transaction times increase the risk of position and vault liquidations.
Some DeFi protocols liquidate user vaults and collateral when their value drops below a certain threshold. Slow transaction confirmations on Ethereum make vault and collateral value adjustments/recalculations less timely, increasing the risk of unnecessary liquidations.
In addition to speed and cost inefficiencies, Ethereum is also subject to manipulative behavior from some block validators who try to rearrange pending transactions in a way that increases maximal extractable value (MEV). In such scenarios, a validator picks and chooses transactions to include in the next block (and their particular order) for their own benefit. This can sometimes lead to front-running attacks, in which a validator might move a specific impactful transaction that’s likely to raise the price of an asset to the front of the queue, while buying the asset before the transaction's finalization — a move that some might call "insider trading blockchain-style."
The cost, scalability and transparency issues above have all motivated the Uniswap Labs team to launch its own DeFi-focused Layer 2 platform: Unichain.
Unichain Key Features
Low gas fees
By moving transaction processing to Layer 2, Unichain hopes to reduce gas fees by as much as 95% compared to directly transacting on Ethereum.
High transaction execution speed
Unichain features block production times of just one second, or twelve times as fast as Ethereum's block times. This should greatly improve the efficiency of DeFi operations through reduced slippage rates, more stable gas fees and decreased occurrence of failed transactions, all of which will contribute to an enhanced overall user experience.
Decentralized block validation
Unichain will maintain its own set of validator nodes in order to enhance its network's efficiency, decentralization and transparency. Node operators have to stake UNI on the Ethereum network to be a validator on Unichain.
Transparent block validation and sequencing
Unichain’s platform separates the role of block building (the process of constructing blocks and organizing transactions within a block) from sequencing (ensures the correct ordering of blocks on-chain) with the use of the Trusted Execution Environment (TEE). This allows all block validation and sequencing procedures to be independently verified, mitigating potential manipulation risks from the sequencer alone.
Cross-chain compatibility
As a member of the OP Superchain, Unichain is highly compatible with all of the rollup networks within this popular ecosystem. As of early November 2024, there are 59 networks within the Superchain, including Unichain and Optimism's own mainnet. This should create opportunities for a variety of cross-platform DeFi solutions, such as low-cost, efficient cross-chain liquidity provision and swaps.
How Does Unichain Work?
Unichain operates as an optimistic Layer 2 rollup linked to Ethereum, utilizing its own validators alongside a sequencer responsible for broadcasting pre-built blocks. While the sequencer, run by Uniswap Labs, is a single entity, the decentralized validation network ensures independence from its influence.
The block building validation process takes place within the TEE, which helps ensure the transparency of transaction processing. Both the decentralized validator network and the TEE help minimize the occurrence of conflicting or invalid blocks, a common problem on Ethereum that leads to failed transactions, delays, increased slippage and a frustrating overall user experience.
While the standard block production times on Unichain are set at one second, plans are in place to introduce 0.25-second sub-blocks to further optimize transaction processing speed and scalability.
Closing Thoughts
For too long, Ethereum's cost, scale and speed issues have hampered the broader adoption of DeFi and decreased market efficiency within the crypto sector. By introducing a highly scalable, low-cost and transparent Layer 2 solution, Uniswap Labs aims to completely change the DeFi industry's dynamics. Unichain's stellar technical features will likely lead to significant improvements for DeFi operators and traders.
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