Key info (as of August 25, 2022):
- Circulating Supply — 214,748,364 OP
- Total Supply — 4,294,967,296
- Market Cap — $264,520,019
- Sector — DeFi, Layer 2 solutions, smart contract platform
- Token Type — Native
- Token Usage — Awarding grants and governance
- ATH — $2.21
- ATH Date — August 4, 2022
Optimism is a layer 2 (L2) scaling solution built on top of the Ethereum network. Due to increased interest in L2 scaling solutions, Optimism has risen in prominence in the past year.
As a result of congestion on the Ethereum network, users have been looking for ways to bypass the congestion while also continuing to use the security and decentralization of the Ethereum network. This is where L2 scaling solutions come into play. While there are several kinds of L2 solutions, Optimism uses a proprietary technology called Optimistic Rollups as its method to improve scalability.
Optimism allows developers and users to utilize the Ethereum blockchain on an L2, attempting to allow users a low-cost and super quick way to transact on an L2 scaling solution.
Optimism Labs was co-founded by CEO Jinglan Wang and chief scientist Benjamin Jones, who also serves on the board of the Optimism Foundation.
Total Value Locked
According to DeFiLlama, Optimism has a total value locked (TVL) of $767.93 million as of August 4, 2022. The top 3 dApps on Optimism as of August 4, 2022, are Aave V3, Synthetix, and Velodrome. There are currently 62 dApps on Optimism.
To date, Optimism claims to have saved over $1 billion in gas fees and donated $1 million to public goods and services.
Optimism TVL. Source: DeFiLlama
Layer 2 Chains
In cryptocurrency, there are layer 1 (L1) and layer 2 (L2) blockchains. L1 is the base layer and consists of the underlying infrastructure of a blockchain. Examples of L1 blockchains include Ethereum, Avalanche, and Bitcoin. As the base layer blockchain, dApps, NFTs, and L2 blockchains are built on top of the L1 blockchain. The two main goals of an L2 blockchain are increasing the speed of the underlying blockchain by scaling the network beyond its capacity. While this can be done in a variety of ways, the two main solutions include rolling up transactions and conducting some L1 computation on another layer.
According to DeFiLlama, Optimism is the ninth largest chain by total value locked. In the L2 space, Optimism has several competitors, with each chain scaling in a different way.
Layer 2 blockchains continue to increase in popularity because of the rise in popularity of smart contracts, cryptocurrency, and blockchain technology. L1 blockchains such as Ethereum are experiencing large increases in transactions resulting in a clogged network and higher gas fees. An L2 solution, like Optimism, helps free up these logjams by offering alternate paths to validating transactions, thus alleviating the network and lowering fees.
Gas Fees Explained
On blockchains such as Ethereum, users must pay “gas fees” to perform many actions on the network. Gas fees on the Ethereum network are used to mint NFTs, interact with DeFi protocols, as well as send ETH, ERC-20 tokens, and NFTs from one wallet to another. In short, nearly every activity done on the Ethereum network requires a gas fee.
All gas fees on the Ethereum blockchain must be paid in the network’s native coin, Ether. Gas fees on the blockchain are denoted in gwei. One gwei is equal to 0.000000001 ETH. Gas fees are used on the network to incentivize Ethereum miners to prioritize transactions. Users then “bid” for their transaction to be prioritized, starting what some call a “bidding war.” This means that during times of high volume on the network, gas fees can become extremely expensive. Simply put, fewer transactions are pending, and less bidding occurs, which in turn lowers fees.
How Optimism Works
As a result of the high congestion on the Ethereum network, users have been searching for a way to decrease gas fees and increase the scalability of the network. Layer 2 chains work to divert some of the congestion onto itself, allowing for freer movement on the underlying L1 network. Optimism achieves this by placing all transaction data on the Ethereum Blockchain while running all computations off-chain. However, data from the transactions is proposed and validated on the Ethereum blockchain.
Layer 2 blockchains, such as Optimism, attempt to increase the scalability of the underlying Ethereum network by rolling up transactions. Put simply, Layer 2 Optimism provides to users and developers by bridging assets from one layer to another and creating dApps on top of Optimism, both users and developers can transact on Optimism while maintaining the data on the Ethereum network.
What is an Optimistic Rollup?
Optimism allows Ethereum to handle more transactions per second and decreases transaction costs by using a proprietary technology called Optimistic Rollups. In short, these work to bundle off-chain transactions and submits them in large batches to the Ethereum network. This in turn reduces fees for users. Optimism then compresses the data to reduce storage problems on the network before posting it back to the Ethereum blockchain.
At the moment, Optimism’s biggest competitor is Arbitrum. Both Arbitrum and Optimism use Optimistic rollups to scale the underlying Ethereum network. While Optimism uses single-round fraud proofs, Arbitrum uses multi-round fraud proofs.
While Optimism has 62 dApps currently built on it, Arbitrum has 109. Arbitrum has a total value locked of $954.1 million. Of all rollup chains, Optimism is the largest by market capitalization, accounting for 51% of the TVL of all rollup chains. Arbitrum accounts for another 45%, meaning that Optimism and Arbitrum account for over 96% of the TVL of all rollup chains.
While this difference can be very technical, the difference between Arbitrum and Optimism involves how transactions are submitted to eliminate the possibility of any fraud. Arbitrum also doesn’t utilize the Ethereum Virtual Machine, it utilizes the Arbitrum Virtual Machine.
About the OP Token
The native cryptocurrency of Optimism is the Optimism Token (OP). OP is currently the 102nd largest cryptocurrency by market capitalization.
Recently, Optimism conducted an airdrop for select users who had engaged with the Optimism bridge before the token’s release. Currently, the OP Token is used primarily for governance. OP tokens will also be given to projects on Optimism.
These scaling solutions help users quickly transact with dApps and developers building on Optimism. Optimism is equivalent to the Ethereum Virtual Machine, allowing developers to create dApps and tools that work on the network.
Optimism exists to serve two primary functions: to increase the transactions Ethereum can handle and to decrease the gas fees. The OP token gives users access to the Optimism Collective.
Developed by Optimism Labs, Optimism is managed by the Optimism Foundation, a non-profit organization whose mission is to grow and seed the Optimism Chain. Optimism is governed by the Optimism Collective which is in charge of running and upgrading the protocol. Since the Optimism protocol generates a great amount of money and crypto in revenue, the Optimism Collective helps allocate these funds to a wide array of projects, protocols, organizations, and communities that are building towards what Optimism calls “the common good.”
According to the Optimism constitution, governance of the Optimism chain will be managed by two equal branches known as the Optimism Collective, with ownership of the OP token allowing users to take part in governance issues on the chain.
The two branches are the Token House and the Citizens’ House. The Token House is made up of members of the community who help allocate project incentives, protocol upgrades, and treasury funds The Citizen’s House deals with retroactive public goods funding, and can only be joined through non-transferable citizenship that is awarded through a process that involves both houses. In turn, both houses deal with network parameters and granting citizenships. This requires users to hold OP as grounds for participation.
The Token House and Citizens’ House. Source: Optimism
The Launch of the Optimism Token
On May 31, 2022, the OP token was launched as the governance and native cryptocurrency of the Optimism Chain. For the initial airdrop, over 230,000 addresses qualified to claim over 210 million OP tokens.
Following the airdrop, the OP token saw a massive dip in its price Since then, the value remained somewhat stable around the $0.50 price, before surging to a new all-time high of over $2.15 in early August.
Where to learn more about Optimism
There are many resources available to those looking to learn more about Optimism, the OP Token, and using the Optimism chain. Check out Optimism’s official website to learn more about the OP ecosystem, governance, block explorer, and much more. Another place to learn more about Optimism is DeFiLlama. Track the top dApps on Optimism, track the total value locked on Optimism, and much more on DeFiLlama. You can also track the price of OP on CEX.IO.