Uniswap Labs Launches UniChain Layer 2 Blockchain, Targets MEV with Flashbots TEE

Uniswap Labs, the founder of the original decentralized exchange (DEX) Uniswap, has launched the UniChain layer 2 (L2) blockchain.

Uniswap Labs, the founder of the original decentralized exchange (DEX) Uniswap, has launched the UniChain layer 2 (L2) blockchain. Another DeFi player, the money market fund provider Ondo Finance, launched its own layer 1 blockchain last week.

Fragmentation is a feature of both the permissioned and permissionless blockchain ecosystems. While there’s a different rationale for so many blockchains in the DeFi and traditional finance (TradFi) spaces, there is some overlap.

In TradFi, the goal of many institutions is to develop THE blockchain and have others come and use it, which ultimately is a profit motive. For DeFi the driver is often tokenomics – new chains provide revenue opportunities for the related tokens.

Layer 2 chains in the permissionless arena offer lower transaction costs compared to Ethereum. Uniswap users already have the option for lower cost offerings on 11 other chains.

Before deciding to launch UniChain, Uniswap conducted research which found it has far more transactions on other layer 2 chains than on the Ethereum mainnet. But these are much smaller transactions.

A quick look at total value locked (TVL) shows almost $3 billion on Ethereum. The second largest chain is Coinbase’s Base with almost $250 million.

Given the whole point of an exchange is to provide liquidity, TVL matters.

“Unichain is built differently,” said Hayden Adams, Founder and CEO of Uniswap Labs. “We’re here to make DeFi faster, cheaper, more decentralized, which is why we launched Unichain to be permissionless from day one.”

In fact, many layer 2 blockchains end up sacrificing decentralization. Adams’ point is that Unichain is more-or-less decentralized from day 1, but not fully, just in case something goes wrong. [It’s a Stage 1 rollup using the Optimism Superchain].

Its own L2 chain also allows it to add new features. One of them – Flashbots TEE – is interesting.

MEV and trusted execution environments (TEE)

In the traditional finance world, certain trading behavior such as front running or sandwich attacks based on insider information are often illegal.

Because permissionless blockchains are public and relatively slow, it’s possible to examine queued transactions in memory. Hence, if someone can see a big buy trade that’s likely to inflate the price of a coin, they can put their own buy order ahead of that one.

This frontrunning on blockchains is referred to as maximal extractable value (MEV).

One of the latest trends is to try to limit the types of MEV transactions. There’s some appreciation that traders lose out with frontrunning and sandwich attacks.

Hence, there’s a move by Flashbots, the main provider for MEV technology, to use partial transaction privacy using trusted execution environments (TEE), like Intel’s SGX hardware.

SGX hardware is similar to secure enclaves on an iPhone which are used to store bank card data – the data is not available to the rest of the operating system.

Flashbots doesn’t want to completely eliminate MEV. It aims to hide the transaction amount and wallet address. That prevents frontrunning and sandwich attacks.

However, It doesn’t stop backrunning. When a large transaction moves the token price, there’s often a smaller opportunity afterward. Taking advantage of that with another trade is referred to as backrunning.

So, UniChain plans to use Flashbots TEE, which will come with the handy side effect of faster transaction finality.