Uniswap Launches L2 Unichain, What Impact Will It Have on the Ethereum Ecosystem?

The emergence of L2 solutions allows smaller independent blockchains to leverage Ethereum's deep liquidity, while providing a way to optimize user experience for DeFi. This is exactly the direction that the largest decentralized exchanges are currently betting on.

On October 10th, a well-known DEX announced plans to establish L2 on Ethereum. The solution is built using the OP Stack and is named Unichain. It aims to address the limitations currently faced by DeFi, including cost, speed, and interoperability, to achieve faster, cheaper transactions and better cross-chain liquidity, thereby opening up new markets and use cases.

The CEO of the DEX stated: "After years of building and expanding DeFi products, we have identified areas where the blockchain needs improvement, as well as the conditions necessary to continue advancing the Ethereum roadmap. Unichain will provide the speed and cost savings achieved by L2, better cross-chain liquidity acquisition, and will be more decentralized."

Among the many L2 solutions, Unichain aims to improve competitiveness in three key areas: cost, speed, and interoperability. It is expected that the transaction costs after the launch of Unichain will be 95% cheaper than those of Ethereum, and costs will decrease over time. While low transaction costs are not new for Ethereum L2, Unichain claims it will achieve this low cost while maintaining decentralization, which most other L2s have yet to accomplish.

Unichain aims to achieve this through the upcoming decentralized validation network, allowing full nodes to help validate blocks through staking, which further promotes the decentralization of the blockchain. Stakers will act as a second layer of security on the Unichain platform, enhancing network security and making it less susceptible to attacks and manipulation. The addition of new validators also increases the resilience of the network, ensuring it can support greater transaction demands without compromising security.

At the same time, Unichain will provide users with almost instant transactions, with a block time of 1 second, ultimately reducing to 0.2-0.25 seconds. In contrast, Ethereum has a block time of 12 seconds, while most L2s have a block time of 2 seconds. This speed not only improves user experience but also plays a crucial role in enhancing market efficiency.

The shorter block time of Unichain will reduce the value loss caused by MEV. With Unichain's fast transaction times, the opportunities for arbitrage and MEV decrease, allowing users to obtain better value from their transactions.

In addition, Unichain has significantly reduced transaction times by utilizing a block builder developed in collaboration with the Ethereum development team. The core of the block builder is the Trusted Execution Environment (TEE), which can enhance the transparency and speed of transaction ordering and prevent transaction failures.

Unichain is committed to providing a seamless cross-chain exchange experience for Superchain transactions by leveraging native interoperability. This is crucial for the future of DeFi, as users and protocols increasingly demand smooth and convenient access to various blockchains. Currently, the L2 of Optimistic rollup includes multiple networks that are all potential candidates for achieving seamless interoperability in the future.

For chains outside of Superchain, Unichain is working to improve the communication methods between different blockchains. Through plans like ERC-7683, a cross-chain transaction execution standard aimed at enhancing cross-chain transactions, the goal is to make transactions between any chains effortless.

Unichain adopts a modular design, which means that new features can be added to make it more decentralized and user-friendly. Moreover, it is open-source, allowing other chains to join and use its technology. The development team will also continue to contribute to the scaling of Ethereum, ensuring that DeFi provides a better experience for everyone.

Although the co-founder of Ethereum has not yet commented on Unichain, he did provide some insights on related ideas in a post from September 2022. He believes that deploying rollups on DEX is meaningless, and if it is deployed on each rollup, it can achieve better development.

However, based on his comments on L2 last month, he believes that the low transaction fees of L2 are an important milestone for the entire Ethereum ecosystem as it addresses the main challenges of mainstream adoption.

In fact, this DEX has been expanding continuously since its launch and has been deployed on multiple protocols, including Ethereum, Base, and Binance Smart Chain, but ultimately chose to launch its native L2. It is worth noting that the launch of Ethereum L2 solutions has become a common phenomenon in the crypto space. Most of these projects focus on addressing Ethereum's scalability challenges.

Data shows that there are currently 105 L2 protocols attempting to solve the scalability issues of Ethereum. Among these L2 protocols, the top three projects by TVL are $13 billion, $7.2 billion, and $5.8 billion.

Meanwhile, the co-founder of Ethereum is also seeking more ways to improve the functionality of Ethereum. He recently shared a new vision for the ecosystem, centered around enhancing Ethereum's consistency. In the Ethereum ecosystem, balance is one of the most important governance challenges, integrating decentralization and collaboration. The strength of this ecosystem lies in the wide array of individuals and organizations, all working towards their respective visions of what Ethereum could become. The main challenge is to ensure that all projects collaboratively build an Ethereum ecosystem, rather than 138 incompatible territories.

As this DEX has generated the highest revenue for Ethereum, it is one of the largest user bases on the Ethereum L1 chain. Some crypto community commentators believe that the launch of a native L2 chain may affect the Ethereum mainnet. Once it moves to its own chain, it will be able to capture transaction fees and MEV fees. Although the exact business share of the transfer from Ethereum to the new blockchain remains to be seen, both sources of revenue are certainly substantial.

However, this may lead to a decline in relevant network activity on Ethereum L1, which in turn could affect the rate of ETH destruction. An increasing number of protocols moving away from Ethereum's L1 may continue to weaken the narrative of ETH as a "super sound currency."

Although the launch of Unichain has raised doubts about the Ethereum narrative, community supporters argue that Ethereum still holds strong catalysts, and Ethereum as a technology and ecosystem will only grow larger over time.

First, the rise of staking infrastructure has brought a wealth of innovation to Ethereum technology: data availability layers, on-chain oracles, trustless bridges, and more. Next-generation L2 solutions will push Ethereum's throughput to exceed 100,000 TPS and achieve seamless interoperability with competitive ecosystems outside of EVM.

Secondly, the participation of top asset management firms and Web2 tech giants in using Ethereum solutions will only increase over time.

Finally, L2 is continuously bringing retail customers to Ethereum, especially in scenarios where on-chain transaction fees are lower. The same goes for mainstream dApps, as they have finally found product-market fit and are meeting the real-world needs of internet users.

Although the launch of Unichain may impact the transaction fees for Ethereum L1 and challenge some of Ethereum's fundamental functions to a certain extent, this initiative could trigger a broader migration trend by redirecting fees and network activities, reshaping the competitive landscape of the cryptocurrency market, and encouraging innovation and competitiveness among Ethereum and other blockchains.

At the same time, as the largest decentralized exchange by trading volume, Unichain aims to expand the DeFi and Ethereum ecosystem by optimizing trading speed, reducing costs, and improving user experience, thereby increasing user participation in DeFi and promoting mass adoption, benefiting multiple blockchains including Ethereum.

Essentially, Unichain and other L2 solutions are not in direct competition with Ethereum; rather, they work together to create scenarios more suitable for large-scale adoption, tapping into the true growth points of Ethereum, namely technological innovation, user growth, extensive participation from tech giants, and the explosion of Dapp applications.