Industry leaders stay on top by shaping the market through innovation, trendsetting, and marketing influence. With the launch of Unichain, Uniswap’s L2 blockchain, the Uniswap team may have shifted the landscape not just for their platform but for all dApps across the Ethereum ecosystem.
The team behind Uniswap, the leading decentralized exchange, has joined the race to scale Ethereum with their own Layer 2 (L2) blockchain, Unichain. Currently in its testing phase, the mainnet launch is expected in Q4 2024.
Unichain, developed by Uniswap Labs, will be built on Superchain, a unified blockchain network created with OP Stack.
What is Uniswap?
To understand Unichain better, let's start with its foundational project—Uniswap, the decentralized exchange (DEX). We'll look at its core features, market share, and performance metrics.
As of October 2024, Uniswap is the largest DEX by Total Value Locked (TVL), with $5 billion locked in its smart contracts.
For comparison, PancakeSwap, Uniswap’s closest competitor, has a TVL of only $1.7 billion.
Top 5 DEXs by TVL. Source: defillama.com
Uniswap facilitates trading in over 2,000 pairs (such as USDC/AEVO, USDT/LINK) and records daily trade volumes of $350 million. Its platform offers token swaps, limit orders, asset transfers, and quick asset purchases.
Uniswap controls more than 46% of the total trading volume on Ethereum-based DEXs, while PancakeSwap captures just 21.9%.
According to Artemis Analytics, more than 71,500 unique wallets interact with Uniswap's smart contracts daily, with around 1.2 million active users per day.
Daily unique and active users of Uniswap. Source: artemisanalytics.com
Uniswap’s dominance is clear. It remains a market leader, as shown not only by the statistics but also by its constant innovation.
In February 2024, the Uniswap Foundation became the first DEX to introduce a revamped staking model for its native token, UNI, turning it into both a governance token and a reward asset.
Given these developments, it’s no surprise that Uniswap is one of the first significant decentralized apps (dApps) to launch its own Layer 2 (L2) network, Unichain.
But why?
Why is Uniswap Developing Unichain?
While Uniswap is one of the most prominent decentralized exchanges in the industry, it still faces significant limitations stemming from the blockchains it operates on (for instance, Ethereum’s relatively slow transaction speed—around 10–12 seconds).
These issues mean that all Ethereum-based platforms, including Uniswap, are bound by the blockchain’s limitations, often requiring additional tools or enhancements to improve functionality.
Unichain seeks to address these problems by migrating part of the platform’s liquidity from Ethereum onto its own blockchain. This would give users access to unified liquidity pools (LPs) and significantly reduce slippage in trading.
Notably, this move aligns with Ethereum founder Vitalik Buterin’s long-term vision for Ethereum scalability. His roadmap proposes offloading the majority of transactions to Layer 2 (L2) networks to reduce congestion on Ethereum’s Layer 1 (L1). L2 blockchains not only process transactions faster and more cheaply, but they also reduce the load on the main Ethereum network.
By shifting to Unichain, Uniswap can boost rewards for UNI token holders, who will earn staking rewards by participating in Unichain’s consensus algorithm.
Furthermore, Uniswap can customize Unichain to better suit the needs of its DEX. This includes customizing transaction orders and integrating proprietary tools, such as Flashblocks and MEV-resistant mechanisms.
Key Features of Unichain
Unichain is an optimistic rollup of Ethereum, developed using the OP Stack (the Optimism development framework). This blockchain was launched by Uniswap in collaboration with Flashbots, OP Labs, and Paradigm. Its standout technical features include Verifiable Block Building (VBB) and the Unichain Validation Network (UVN).
Key Features of Unichain. Source: mirror.xyz
Additionally, Unichain will be integrated into the Superchain ecosystem, allowing for a more seamless user experience by improving interaction between various platforms and solutions within this ecosystem.
Verifiable Block Building
Verifiable Block Building became a reality through Rollup-Boost, a feature developed in partnership with Flashbots. Rollup-Boost acts as add-on software and introduces two core components: Flashblocks and Verifiable Priority Ordering.
Flashblocks is a pre-confirmation mechanism for blocks, integrated within a secure data-handling solution known as TEE (Trusted Execution Environment). With Flashblocks, every 250 milliseconds, partial blocks (a quarter of a full block) are generated on Unichain and sent to the sequencer, which manages the organization of transactions on L2s.
Trusted Execution Environment architecture. Source: flashbots.net
This method enables quicker blockchain state updates, speeds up transaction processing, enhances user experience, and reduces the negative effects of malicious MEV.
Verifiable Priority Ordering builds upon the original Priority Ordering concept, introduced by Dan Robinson and Dave White of Paradigm to order transactions on the blockchain. The key difference with VPO is that it leverages the security features of TEE.
According to Flashbots documentation, if TEE fails, the system will automatically fall back to the standard Priority Ordering method.
Verifiable Priority Ordering ensures a transparent and fair transaction processing system on Unichain, reducing the risk of malicious activities such as frontrunning.
Unichain Validation Network
The Unichain Validation Network is a decentralized group of validators responsible for verifying the current state of Unichain and ensuring fast blockchain finality. This setup enables seamless cross-chain transactions, supported by Unichain’s economic security.
Similar systems are in place with AltLayer, Nuffle, and Symbiotic.
To become a Unichain validator, you need to stake UNI tokens on the Ethereum mainnet. During each epoch (a period in which a set number of blocks are created), nodes with the largest UNI stakes are selected to join the active validator set and take part in the consensus process.
How the Unichain Validation Network works. Source: mirror.xyz
As with many PoS networks, UNI holders can delegate their tokens to other validators.
Impact of Unichain on Ethereum and ETH
The launch of Unichain’s testnet has stirred up extensive discussions about the potential role of this blockchain in the Ethereum ecosystem and the wider crypto industry. The community has raised the possibility that Unichain could influence Ethereum in both positive and negative ways.
Negative impacts on Ethereum:
- Decreased demand for ETH: If Unichain uses its native UNI token for transaction fees, the demand for ETH may drop.
- Lower transaction volume on Ethereum: If network activity shifts from Ethereum to Unichain, Ethereum validators could see reduced transaction fees, leading to lower rewards and profitability (though this would benefit users with lower fees).
- Liquidity drain from Ethereum: A significant liquidity migration to Unichain could cause slippage and reduced trading volumes on Ethereum and other L2 networks.
These outcomes would only occur if Unichain succeeds and attracts a significant user base from Ethereum to its L2 network. If that happens, Unichain could emerge as a major center of DeFi activity, drawing in institutional investors and large market makers with faster transactions and better trade execution.
It’s still uncertain how likely such a migration is. According to the analytics platform Dune, 66% of Uniswap’s trading volume is currently on Ethereum, followed by Arbitrum and Base.
Trading volume distribution on Uniswap across networks and weekly trading volume on Ethereum, Polygon, Arbitrum, and Optimism. Source: dune.com
For Ethereum to experience a noticeable impact from liquidity moving to Unichain, the latter would need to capture at least one-third of Uniswap’s activity on Ethereum.
Is it possible? Definitely.
Will it happen? That remains to be seen.
Will it happen? That remains to be seen.
Positive impacts on Ethereum:
- Support for Ethereum's long-term vision: Unichain still depends on Ethereum, contributing to the growth and expansion of its ecosystem.
- Ethereum as the settlement layer: The emergence of new L2 networks on Ethereum further solidifies its position as the leading settlement layer in the crypto industry.
- Increased Ethereum adoption: The launch of Unichain has the potential to bring new users into the Ethereum ecosystem.
Discussions about Unichain have been ongoing for a while, with many in the community expressing their views on the project as far back as 2022. Even Vitalik Buterin has weighed in on the matter.
In his opinion, creating a separate blockchain for Uniswap doesn’t make much sense. Instead, he advocates for deploying individual instances of Uniswap on each rollup.
How to Profit from the Launch of Unichain
The development of any product is intriguing from two angles: its technological innovation for the industry and the financial opportunities it presents for users. We've already covered the first aspect in detail. Now, let's focus on how you can benefit financially.
There are three main ways to potentially profit from the launch of Unichain:
- Buying UNI tokens
- Participating in Unichain's consensus mechanism
- Positioning for an airdrop
Buying UNI Tokens
It’s highly likely that UNI will serve as the native token of Unichain. This means users will need it to pay transaction fees, validators will stake it to participate in the consensus, and stakers will receive staking rewards.
Given this, UNI could see a surge in demand: more buyers and fewer sellers. Additionally, the token's enhanced utility could reduce selling pressure.
UNI has been trading within a range of $5.139 to $7.072 for 520 days (since September 2023). In February 2024, it broke out of this range and is now hovering near the upper boundary, which often signals potential for further upward movement. Entering long positions within this range could be a smart move for long-term gains.
UNI/USDT technical analysis. Source: tradingview.com
Initial profit targets could be set at $14.501, with secondary and tertiary targets at $20.591 and $30.039, respectively.
Always remember to do your own research (DYOR)!
Validating Transactions on Unichain
This approach is ideal for tech-savvy users. If you’re already involved in consensus mechanisms on other blockchains, you could consider doing the same with Unichain.
Validators on Uniswap’s L2 network may not only earn rewards from transaction confirmations but also benefit from future airdrops.
Airdrop Participation
At the time of writing, Unichain is still in its testnet phase, meaning anyone can participate. You can connect to the network, conduct transactions, and interact with smart contracts.
This type of activity might be rewarded not only by the Uniswap team but also by Optimism. Since Unichain is integrated into the Superchain, users of the Superchain received an airdrop from Optimism on October 9, 2024.
For more information on how to participate in the Unichain testnet, visit the official website.
The Future of dApps: A Look at Unichain
With the announcement of Unichain’s launch on October 10, 2024, Uniswap may have set a new standard for the future of dApps. In the past, applications typically deployed their products on existing blockchains. However, if Unichain proves successful, it could pave the way for other DEX teams to build and launch their own networks, following Uniswap’s example.
This shift is known as the "Shift from Fat Protocol to Fat Application Thesis," which suggests a transfer of value from the underlying protocols to the specific applications themselves.
Fat Application Thesis in the traditional Internet vs Fat Protocol Thesis in the blockchain. Source: marketvector.com
We’ve already seen this happen with the traditional Internet: protocols like HTTP or email no longer hold intrinsic value—applications like Google and Facebook are where the value lies.
Blockchain may be heading in the same direction.
