What is Optimism (OP)?

10.08.2022

#Kriptorium: Ethereum #Layer 2 Solutions #Optimism (OP)#Optimistic Rollup

Key points

Optimism is a Layer-2 (L2) scaling solution designed to boost the speed and scalability of the Ethereum network.
The Optimism blockchain uses Optimistic Rollups, cutting transaction fees by orders of magnitude versus Ethereum’s Layer 1 (L1) while allowing any Solidity-based smart contracts and decentralised applications to be deployed on L2 with minimal changes.
The L2 network’s throughput ranges from 200 to 2,000 transactions per second.
According to DefiLlama, Optimism ranks among the leading L2 networks by number of live protocols (over 60) and total value locked (over $1bn as of August 2022).

Who created and funded Optimism?

The Optimism protocol was developed by Optimism PBC (later renamed OP Labs PBC), founded in New York in 2019. The start-up was launched by Jinglan Wang, Kevin Ho and Karl Floersch, former Ethereum developers.

Over its lifetime the project has raised $178.5m across three investment rounds.

A non-profit, the Optimism Foundation, was set up to steward the funds and incentivise ecosystem growth. It is led by the Optimism co-founders, as well as Eva Beylin (director of the Graph Foundation), Abbey Titcomb (head of community at Radicle) and Brian Avello of the Maker Foundation.

The fund is expected to share its powers over time with the decentralised governance body Optimism Collective. The OP Labs PBC team launched a testnet in October 2019, an alpha mainnet in January 2021, and a final mainnet release with EVM support in December 2021.

How does Optimism’s tokenomics work?

The Optimism L2 network has a native governance token, OP, launched on 31 May 2022.

Total supply is 4.3bn OP, allocated as follows:

20% — to members of the Optimism Collective;
25% — reserved for ecosystem funds;
19% — to be distributed to users via airdrops;
17% — for early investors;
19% — for the team and developers.

The first airdrop was among the largest in crypto history: from 31 May 2022, more than 248,000 users of the Optimism ecosystem received 251m OP, or 5% of total supply. A further 14% is slated for several retroactive airdrops.

According to Optimism’s documentation, the OP token has the following roles, to be enabled gradually:

funding development of the Optimism ecosystem;
voting on protocol upgrades and allocation of ecosystem funds;
participating in governance of projects within the Optimism Collective.

How does Optimism work?

To increase throughput and minimise transaction costs, Optimism uses Optimistic Rollups. Transactions and smart-contract execution occur on the L2 network, while Ethereum’s mainnet handles block production and security.

The network runs its own Optimistic Virtual Machine (OVM), enabling Ethereum smart contracts and decentralised applications to run on L2 without changes.

To accelerate processing, the OVM employs “optimistic execution,” refraining from validating each transaction upfront. Unlike Ethereum L1, any transaction on Optimism is considered valid unless proven otherwise. This yields 200–2,000 transactions per second, versus roughly 10 tps on Ethereum.

For security (for instance, to prevent double-spends), the OVM lets network participants challenge transactions.

Special nodes called sequencers bundle hundreds of L2 transactions into compact batches that are submitted to Ethereum mainnet blocks.

Another node type — verifiers — can challenge the validity of a sequencer’s batch for up to one week. If challenged, the entire batch is checked by comparing root states before and after the transaction.

If a proposal is found to be fraudulent, the entire batch and the corresponding block are rejected, the vigilant verifier is rewarded, and the sequencer is penalised. Thus verifiers are incentivised to expose bad actors, and sequencers earn fees only for valid proposals.

Because each batch contains hundreds of transactions, gas costs are shared among users. According to l2fees.info, in August 2022 the fee to transfer ETH on Optimism fell below $0.04, and token swaps below $0.07 — roughly 30–100 times cheaper than on Ethereum.

What is in the Optimism ecosystem?

More than 60 decentralised protocols, cross-chain bridges and other blockchain projects run on Optimism. The network is supported by the most popular Web3 wallets, including MetaMask, Trust Wallet and Coinbase Wallet. Major stablecoins such as USDT, USDC, DAI, FRAX and USDD are also issued on Optimism.

According to DefiLlama, the top five applications by total value locked (TVL) on Optimism are:

the lending protocol Aave;
the derivatives platform Synthetix;
the decentralised exchanges Velodrome and Uniswap;
the gaming platform PoolTogether.

To support ecosystem growth, the Optimism Foundation awards grants to developers and teams launching dApps and Web3 services on Optimism. In November 2021, the first round of “retroactive funding” allocated $1m across 58 projects.

NFT projects are a focus within the ecosystem. Notable collections include Optipunks, Optimistic Bunnies, Optimistic Loggies, Dope Wars, oe40, tofuNFT, Quixotic and Circular Art.

As on other blockchain platforms, several major incidents have affected Optimism-based apps. In June 2022 a hacker “intercepted” 20m OP (about $17m) that the Optimism Foundation had sent to market maker Wintermute, but later returned the funds to the recipient.

Less than a month later, Quixotic, the largest Optimism-based NFT marketplace, came under attack.

How is Optimism evolving?

As of August 2022, Optimism’s low transaction costs had saved users more than $1bn.

The team is focused on building a new governance system that shares authority between the Optimism Foundation and members of the Optimism Collective.

Under a concept published in April 2022, the Optimism Collective is a decentralised autonomous organisation for digital democratic governance, designed to foster rapid and sustainable growth of the decentralised ecosystem.

The Optimism Collective will comprise two houses:

The Citizens House — includes holders of non-transferable “soul bound” NFTs tied to a specific address;
The Token House — includes OP holders and functions like a traditional DAO.

The Merge, scheduled for September 2022 and completing Ethereum’s transition to Proof-of-Stake, is expected to give Optimism a powerful boost, chiefly thanks to the Rollup-Centric Roadmap — Ethereum’s unofficial plan to scale via tight integration with L2 solutions.

In late July 2022, the Optimism team introduced an Ethereum transaction automation system called Drippie.