What is Optimism ($OP): Layer 2s Scaling ETH and the $OP Token

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Optimism is a Layer 2 Optimistic Rollup network that utilizes Ethereum’s strong security while reducing cost and latency.

Uniquely, an “optimistic rollup” processes transactions off-chain and then batches these transactions into a single transaction posted on-chain; the “optimistic” aspect of these rollups comes from the assumption that all transactions are valid by default. 

Optimism is essentially an extension of Ethereum, offering cheaper and faster transactions. 

The $OP token is used for governance and can be bought or sold on exchanges like Coinbase.

Optimism Fees vs. Ethereum Fees

A typical transaction cost on Optimism can be approximately ten times cheaper than on Ethereum.

Optimism significantly reduces transaction fees compared to the Ethereum mainnet by leveraging its Layer 2 optimistic rollups. 

Here’s how these fees work:

The L2 Execution Fee is the cost to execute the transaction on Optimism’s Layer 2 network.

The L1 Data Fee covers the cost of posting transaction data back to the Ethereum mainnet (Layer 1) as part of the rollup process.

These fees are generally much lower than those charged for conducting the same transaction directly on Ethereum. 

Optimism also improves transaction speeds. On Ethereum, transactions are limited by block confirmation times, which can lead to delays, especially during network congestion. Optimism batches multiple transactions off-chain and then posts them to Ethereum, which speeds up the process. This approach enables near-instant transaction confirmations on its Layer 2 network. During peak times, Ethereum transactions can take several minutes to confirm, whereas Optimism is often within seconds.  

How Does Optimism Make Money?

Optimism’s economic model hinges on the belief that robust public goods create a thriving ecosystem. It’s designed to generate value for three key groups: token holders, contributors/builders, and users/community members.

Revenue Generation

Sequencer Revenue: The centralized sequencer processes transactions and generates revenue from transaction fees. The Optimism Foundation initially manages this revenue, which a decentralized sequencing network will eventually handle.

Blockspace Demand: The right to use Optimism’s blockspace is the primary revenue source. As the network grows, demand for blockspace increases, generating more revenue.

Revenue Distribution

Funding Public Goods: Sequencer revenue is redistributed to fund public goods, which include developer tools, infrastructure, and educational resources. This funding is managed through Retroactive Public Goods Funding (RetroPGF).

RetroPGF: The Citizens’ House, part of the two-house governance system, votes quarterly on fund distributions to projects that provide significant value to the ecosystem. This incentivizes builders to contribute to the ecosystem without needing direct revenue generation.

Value Creation

For Tokenholders: Revenue from the sequencer funds public goods, which enhances the ecosystem and drives demand for blockspace.

For Builders/Contributors: RetroPGF compensates builders for their contributions and opens markets for early investment in public goods projects.

For Users and Community Members: Ongoing airdrops of OP tokens and project incentives funded by the OP ecosystem benefit users directly. Public goods also enhance the overall user experience.

Founding Team

Optimism Labs, founded by Jinglan Wang, Kevin Ho, and Karl Floersch in 2019, developed the Optimism network. 

Their mission was to create a fast, stable, and scalable Layer 2 solution that aligns with Ethereum’s principles and enhances its capabilities.

Airdrops on Optimism

There have been four Optimism airdrops, each targeting a different part of the cryptocurrency community.

Airdrop #1, distributed in May 2022, allocated between 271 to 27,534.98 OP to roughly 248,699 eligible addresses.

Optimism’s Airdrop #2 distributed 11,742,277.10 OP to 307,965 unique addresses 

Airdrop #3 was on September 18, 2023. The airdrop allocated 19,411,313 OP to 31,870 unique addresses.

All Optimism airdrop information can be found on its official documentation.

Optimism Governance

Optimism employs a unique two-part governance structure that includes the Optimism Fund and the Optimism Collective. 

The Optimism Collective is further divided into the Citizens’ House, which consists of users holding a soul-bound Citizen NFT, and the Token House, comprising users who hold Optimism’s token $OP. The Optimism Fund plans to phase out, leaving only the Optimism Collective. $ETH is the roll-up

The Optimism Superchain
The Optimism Superchain (Source: https://www.optimism.io/)

gas token to work towards EVM equivalence.

The Optimism “Superchain”

The ecosystem includes multiple chains part of a “Superchain” network. Some notable chains are:

  1. Base: A blockchain developed by Coinbase.
  2. Fraxtal: Built by Frax Finance, focusing on DeFi solutions.
  3. Mode: A network designed for creating peer-to-peer parimutuel markets.
  4. OP Mainnet: The primary Optimism network.
  5. Redstone: Focuses on data and analytics.
  6. Zora: A network for creative and artistic projects.

These chains leverage the OP Stack for interoperability, shared security, and ecosystem support.

How to Use, Send, and Receive Crypto on the Optimism Network

Optimism can be used in several ways; the most popular are Coinbase Wallet and MetaMask. 

Method #1: For Coinbase Wallet:

    1. Buy or transfer Optimism tokens from your Coinbase account:
    2. Connect your Coinbase account to Coinbase Wallet.
    3. Select the asset to transfer or buy.
    4. Change the destination network to “Optimism.”
    5. Confirm the transaction.
    6. Transfer funds from Coinbase account to Coinbase Wallet:
    7. Log into your Coinbase account and click “Send & Receive” or “Send.”
    8. Select an asset to send and determine the network and wallet address in Coinbase Wallet.
    9. Paste the wallet address in the Coinbase app, change the network to “Optimism,” and complete the transaction.
    10. Transfer assets to the Optimism network using the Optimism Bridge:
    11. Open Coinbase Wallet and navigate to the Browser tab.
    12. Go to the Optimism Bridge app, input the amount to bridge, and confirm the transaction.

Note: This method may have higher network fees.

Other Methods:

Aside from using Coinbase, you can interact with the Optimism network through several other methods.:

  1. Optimism Bridge: You can use the Optimism Bridge to transfer assets from the Ethereum mainnet to the Optimism network. This involves connecting your wallet (for example, MetaMask) and using the bridge interface to move funds between the two networks.
  2. Other Wallets: MetaMask, Trust Wallet, and others support Optimism. You can transfer assets directly to these wallets and interact with the Optimism network through decentralized applications (dApps) built on Optimism.
  3. DeFi Platforms: Many DeFi platforms, such as Uniswap and Synthetix, have integrated Optimism. You can connect your wallet to these platforms and use Optimism for faster and cheaper transactions. You can also use these platforms to purchase OP. 

Words of Warning:

A best practice: don’t forget about bridging your tokens.

You may lose your funds if you just send Eth L1 tokens to the Op network (which is an L2 but an entirely different network).

Similarly, you’ll lose your money if you send funds on the Optimism network to an exchange that doesn’t support Optimism.

In the words of Optimism’s support documents, “When you transfer assets to a centralized exchange you send it to an address provided by that centralized exchange. By default, this is an Ethereum mainnet address and the exchange does not look at this address in Optimism. As a result, assets transferred directly to a centralized exchange that doesn’t support Optimism are irrevocably lost, unless the exchange can help you. Don’t do it. Verify that the centralized exchange is supporting OP Mainnet and that it looks at the OP Mainnet account before you send it anything.”

Another consideration is that while L2s are inexpensive to use while you’re on them, bridging between L1 and L2 can incur fairly steep gas fees. 

How to Withdraw Assets from OP Mainnet

There are two ways to get your funds off OP. 

  1. Using the OP Mainnet Bridge: Choose from a list of supported ERC-20 tokens, or select any token available on Ethereum mainnet and OP Mainnet.
    1. Connect your wallet and select “Withdraw.”
    2. Choose “Using the official bridge.”
    3. Select the asset and amount.
    4. Approve the transaction in your wallet.
    5. Wait for the withdrawal root to be published on Ethereum.
    6. Prove the withdrawal.
    7. Wait for the seven-day verification period.
    8. Claim the withdrawal.
  1. Third-party bridges may be cheaper and faster, though with a more limited token list.. The bridge loans the asset on the Ethereum mainnet, bypassing the standard verification period and spreading the withdrawal cost over more tokens.

$OP Tokenomics

$OP is the governance token, while $ETH is the gas token. 

The $OP token has carved out a strong presence and trades on significant exchanges predominantly based in Asia, including Binance, DigiFinex, and Bybit. These exchanges’ strategic positioning in vital financial hubs like Singapore and Hong Kong highlights the importance of the Asian market in the Layer-2 landscape. 

$OP’s most popular trading markets

$OP sees its highest trading volume on Binance, followed by DigiFinex, Bybit, HTX (formerly Huobi), and OKX.

Globally recognized platforms like Coinbase make OP more accessible to a broader Western audience. 

As of this writing, $OP has a market cap of $2.2 billion and a circulating supply of nearly 1.1 billion $OP. The token’s max supply is listed as 4,294,967,296 $OP.

Optimism ($OP) launched in May 2022, entering a volatile market but capturing significant interest. Its first central price peak occurred in January 2023, coinciding with Ethereum’s successful transition to a proof-of-stake (PoS) system, boosting confidence in Layer 2 solutions like Optimism. This period also saw heightened interest in decentralized finance (DeFi), driving up transaction volumes and demand for cheaper, scalable solutions.

$OP Tokenomics on CoinGecko

In May 2024, OP reached another peak near $5.00. This surge aligned with a broader crypto market rally and significant Optimism protocol updates, including enhanced Ethereum interoperability and increased adoption of decentralized applications (dApps).

Optimism Competitors

Optimism ($OP) competes with major Ethereum Layer 2 solutions like Arbitrum, Polygon, and zkSync. 

Each competitor brings unique strengths, whether Arbitrum’s efficient fraud proofs, Polygon’s high throughput and flexibility, or zkSync’s advanced zk rollup technology. 

Each platform aims to scale Ethereum by enhancing transaction speeds and reducing costs, and the competition generally comes down to developers and users rather than technology. 

Arbitrum is another leading Layer 2 scaling solution for Ethereum. It utilizes optimistic rollups to enhance transaction throughput and reduce costs. It employs a multi-round fraud-proof system, which can lower dispute resolution costs compared to Optimism’s single-round approach.

It offers potentially lower fees and higher scalability, emphasizing security through its multi-round fraud proofs.

Polygon (formerly MATIC) achieves scalability using sidechains, Plasma chains, and optimistic and zero-knowledge (zk) rollups. It supports up to 65,000 transactions per second and offers significantly lower gas fees.

zkSync uses zero-knowledge rollups (zk rollups), which bundle multiple transactions off-chain and generate cryptographic proofs to ensure transaction validity. It’s positioned as a leader in zk roll-up technology.

Final Thoughts: Rolling Up This Optimistic Rollup

Optimism is a collective of companies, communities, and citizens seemingly aligned to build a sustainable future for Ethereum and reinvest into a more productive cryptocurrency landscape.  It’s poised to play a vital role in Ethereum’s future, enhancing scalability and user experience. 

Optimism’s code is open-sourced and MIT-licensed. It’s the most forked rollup and has become home to a values-aligned community of developers, builders, and users.

As Ethereum’s demand keeps rising, Layer 2 solutions are the heroes users have been waiting for, exasperated by Eth’s gas fees. 

Layer-2s will continue to evolve, as will their communities and competition.

The $OP token has had its ups and downs, but significant price peaks in early 2023 and mid-2024 show that when Ethereum moves, so does Optimism. With continuous technological advancements and a supportive community, the outlook is, well, optimistic.

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