Unichain: Liquidity (Potentially) Begets Liquidity

Boccaccio

To participate as a validator in the Uniswap Validation Network (UVN), node operators must stake UNI tokens on the Ethereum mainnet. The active set of validators will be determined by a limited number of participants with the highest UNI stake-weight. Stake-weighted validation in the UVN could lead to the majority of MEV and fee rewards from Unichain being captured by a small group of people. It is likely that the Uniswap Foundation and VC funds will dominate this process, potentially operating validators for fees. 

An obvious challenge for Uniswap is attracting users to this new system when alternative L2 solutions (such as Base) are available. Their goal seems to be focused on accumulating sufficient liquidity on Unichain such that the cost to swap on Unichain is cheaper than alternatives.

The long-term objective of this initiative is for Uniswap to establish itself as a liquidity layer. Initially, it is likely to compete with other L2s, particularly those on the Optimism superchain. It's worth noting that Ethereum still retains substantial liquidity that cannot be easily transferred to other networks.

This development may also address the everlasting discussion surrounding Uniswap's fee switch mechanism. A potential solution could involve Uniswap allocating a portion of revenue generated from MEV to UNI token stakers on the Ethereum chain.

Lastly, how Unichain will affect asset issuance across Ethereum and L2s is an important point of consideration. While existing liquidity cannot be directly transferred, protocols/apps/users may choose to launch tokens on the new Unichain. In this sense, Unichain does not only threaten volumes on Ethereum L1 and other L2s, but also onchain asset issuance.

On the other hand, this is one of the first attempts for an L2 to build something that is significantly different to the existing L2 landscape. Unichain could capture volume and direct it, successfully, to token holders and stakers, especially if they are able to leverage the intents network to settle crosschain ETH, WETH, USDC, USDT swaps and transactions. These would make the most sense to focus on, since they represent most of the volume, and exist on the majority of ETH L2s and on Ethereum Mainnet. If crosschain fees for these can be captured and returned back to UNI token holders, it could represent a significant shift in UNI’s value proposition.