What is Optimism (OP)?

Introduction

As the leading Ethereum layer 2 scaling solution, Optimism has hosted a series of airdrop events and made its name known to the crypto community. This article will bring you into the world of Optimism.

With the increasing load on the Ethereum Mainnet, high gas fees and network congestion have made users suffer. In response to the poor efficiency and high cost of Ethereum Mainnet, sidechains with higher performance and lower fees such as Polygon have been created etc. These sidechains take the pressure off the Mainnet by diverting users, while also challenging the dominance of Ethereum Mainnet. An alternative to sidechains is Layer 2, which stores key information on the chain, and allows transactions to be completed on or off the Layer 2 chain, minimizing interactions with Mainnet. As a Layer 2 solution, Optimism is in a leading position in terms of technology, ecosystem, and user base. Let’s learn more about Optimism in this Gate Learn article.

Optimism - A Layer 2 Solution

Links:
Official Website: https://www.optimism.io/
Twitter: @optimismFND
Twitch: https://www.twitch.tv/optimismpbc
Discord: discord.com/invite/jtDpRtEX
Mirror: https://optimism.mirror.xyz/Project

The Project

Optimism is a solution for Ethereum scaling, dedicated to sharing the workload of Ethereum Mainnet and lowering the cost of on-chain transactions. In 2019, Plasma, another framework used to solve the scaling problem of Ethereum, found itself in a rather awkward position because it was not well compatible with smart contracts. In 2020, the Plasma team learned from Shadow Chain and launched the Optimism Testnet, and later Optimism Mainnet in 2021. Optimistic Rollups, adopted by Optimism, can run almost all dApps on Ethereum while charging rather low gas fees. As of now, 190 dApps are available on the Optimism blockchain.

The Team

The Optimism team has 3 core members - Karl Floersch, Jinglan Wang and Ben Jones. All of them are early contributors to the Plasma framework. Due to the limitations of Plasma, the team has transformed from a self-organized research team to the Optimism PBC (Public Benefit Corporation) with a dozen employees and an astonishing valuation of more than one billion dollars. The team also includes the Optimism Foundation and the Optimism Collective. The former is a non-profit organization dedicated to promoting the Optimism ecosystem and is responsible for the distribution of OP tokens. The latter is a decentralized autonomous organization (DAO) responsible for the management of the whole project.

How Optimism works

The rollup adopted by Optimism includes 4 major modules: Sequencer, Verifier, CTC (Canonical Transaction Chain), and SCC (State Commitment Chain).

Sequencers produce blocks.
Verifiers verify if the data from Sequencers is valid.
CTC and SCC are contracts deployed on Ethereum, which respectively record the data summary of transactions on the Optimism chain and the root hash value of the Layer 2 state scheme after each transaction is executed.

After users initiate a transaction on the Optimism chain, the transaction are executed by Sequencers on Layer 2. The transaction data will then be sent to CTC and SCC on Ethereum Mainnet and stored. Within the verification period, if a Verifier finds false transaction data stored in the CTC and SCC contracts, the Verifier can report the issue. Once the data is confirmed to be false, the Verifier will be rewarded with tokens, and some of the assets staked by the Sequencer will be deducted as a penalty.
The Difference between Optimism and Arbitrum
Optimism and Arbitrum are both Layer 2 solutions based on the Optimistic Rollup. The main difference between the two is their fraud-proof (FP) verification. Optimism uses single-round fraud proofs and runs transactions directly on Layer 1 to verify fraud. Arbitrum uses multiple-round fraud proofs, which is to perform complex calculations off-chain to find the disagreement. In comparison, Optimism’s FP verification is simpler and more efficient but costs more gas. Arbitrum’s FP verification is more complex and slower, but incurs lower gas fees.

How Optimism Lowers Gas Cost

Gas fees on Optimism are generated on both Layer 1 and Layer 2.

The gas generated on Layer 1 is basically from storing the transaction data in the CTC and SCC contracts. Most of the time, data storage is the only activity that happens on Layer 1, so the gas is very low.

On Layer 2, transaction execution fees are paid to the Sequencer nodes. Since the user base of Layer 2 is very small compared to Ethereum mainnet, the fees required to perform transactions on the Optimism blockchain are also very low.

By transferring most operations to the Optimism chain and only using Ethereum Mainnet to store transaction data, Optimism greatly reduces the gas cost. Optimism also utilizes the strong security guarantees of Ethereum.

How Optimism Earns

Optimism’s revenue mainly comes from 2 sources - the fees charged by its official Sequencers for executing transactions and auctioning MEVs. According to Messari’s The Value of Optimism, these two sources generate about $57 million and $1.3 million in annual revenue, respectively. With the growth of Optimism’s user base, its revenue shows an up-going trend. At the same time, the launch of the OP token will also provide a new source of revenue for the Optimism project.

Optimism’s Roadmap

The Optimism team has been dedicated to solving Ethereum’s scalability problem and has been producing a continuous output. Since 2019, Optimism has successfully reached milestones listed on its official website. This year, Optimism launched its next generation of Fraud Proof. In the future, Optimism will introduce sharded rollup, incentivized verification, decentralized Sequencer, and Layer 1 governed fraud proofs.

The Optimism Ecosystem

Source: https://www.optimism.io/apps/all

Since Optimism is an EVM equivalent chain, all applications deployed on Ethereum Mainnet can be moved to Optimism easily.

According to the data disclosed on the Optimism official website, there are currently 90 applications deployed on Optimism or compatible with Optimism, covering a wide range of categories such as DeFi, NFT, Bridge, On-ramp, Wallet, Tool and DAO.

Wallet applications

The most well-known wallet application must be MetaMask. As the most popular wallet application in Web3, MetaMask has now been connected to Optimism.

How to add the Optimism network through the MetaMask plugin in the browser:

1. Visit the MetaMask official website (https://metamask.io). Download and install the correct MetaMask plugin based on what browser you are using;

1. In Settings, click on Networks - Add Network;

1. Enter the relevant information and click Add;

1. Once it is successfully added, you can switch to the Optimism network in just one click.

Cross-chain bridge applications

Optimism has developed its own cross-chain bridge, Optimism Gateway, to enable asset transfer between Ethereum mainnet and Optimism. Many mainstream cross-chain bridges, such as Hop and Connext, support the cross-chain of assets to Optimism.

Here we take Hop as an example:

1. Visit the official website of Hop (https://app.hop.exchange/). Click “Connect a Wallet” to connect with the MetaMask wallet;

1. Choose where you want to send your assets to and from. Let’s take sending assets from Mainnet to Optimism as an example;

1. Input an amount you want to send from. If it is your first time using Hop, you’ll need to approve before you can successfully send the assets. After clicking on “Send” and signing the transaction, the assets will be sent from Ethereum mainnet to Optimism in a few minutes .

DeFi applications

The top DeFi application on Optimism is definitely Uniswap. Due to Uniswap’s incompatibility with Plasma, Optimistic Rollup was born. Uniswap has announced that it prefers to have Optimism as the Layer 2 network to deploy. Likewise, the Optimism team has been emphasizing that Uniswap is given priority to be deployed on Optimism.

Uniswap is a decentralized liquidity protocol that allows for ERC20 token trading deployed on EVM (ETH, Optimism). Here is a step-by-step instruction on trading asset on Optimism through Uniswap:

1. Visit the official website of Uniswap (https://app.uniswap.org/#/swap?chain=optimism), connect with MetaMask, and select the Optimism network;

1. Select the token and the amount you want to swap. We’ll take an example of swapping ETH for USDT;
   

2. Click on swap and sign in the pop-up window to complete the process of exchanging ETH on Optimism for equivalent USDT tokens.

   Optimism Tokenomics

   On April 27, 2022, Optimism officially announced its token issue plan and the launch of Optimism Collective, a system to govern the Optimism project in the form of DAO. The OP tokens will be used as tickets for participating in Optimism governance.

OP Token Allocations

diagram:https://community.optimism.io/docs/governance/allocations/

The initial total supply of OP tokens is 4,294,967,296, which is planned to increase by 2% every year. Specifically, the initial supply is distributed as follows: retroactive public goods funding (20%), ecosystem fund (25%), investors (17%), core contributors (19%) and user airdrops (19%). The future token allocation will be managed by the Optimism Foundation.

OP Token Airdrops

The OP token airdrop #1 kicked off in May this year. As the largest airdrop in layer 2 sector, it has sparked heated discussions in the industry.

The first airdrop is targeted at early participants and active users, aiming to distribute 5% of the total supply. The snapshot was taken on March 25, 2022, witnessing a total of 248,699 qualified addresses. To be eligible, you’ll need to meet the following criteria:

1. Optimism user: For example, you ever transferred assets from Ethereum mainnet to Optimism;
2. Repeat Optimism user: You are an Optimism user and came to use it again at least one month after your first transaction here.
3. DAO voter: You should have participated in governance by either voting or initiating proposals;
4. Multisig signer: You have executed at least 10 multi-signature transactions;
5. Gitcoin donor (on L1): You have made an on-chain donation through Gitcoin on Layer1;
6. User priced out of Ethereum: This is intended to retain users, who have started bridging to other chains due to Ethereum’s high gas fees, to the Ethereum ecosystem.

Users who have met multiple criteria can get overlap airdrops.

Figure: https://community.optimism.io/docs/governance/airdrop-1/#background

Notably, aftering determining the eligible addresses to receive airdrops, Optimism started a Sybil Filtering and excluded 17,000 addresses. Optimism will also remove sybil addresses reported by the community. However, this move is controversial as some people would maliciously send tokens to other addresses and report the addresses in order to obtain a bonus, causing wrongly identifying of sybil attackers.

Picture: From Twitter@optimismFND

OP Token Price Trend

On the day the OP token airdrop was released, The unprecedented popularity led to network congestion. Many users suffered internet lag, transaction failures, and even inability to connect to the Optimism network when trying to claim the airdrop. While some other users found the on-chain contract instead of going through the front-end webpage, and could hence claim the OP tokens before the time announced by the OP team, and sell them at a high price.

Figure:https://www.coingecko.com

OP token opened at $1.43 and surged to a high of $2.1 shortly. With the project team opening the OP token claim channel and the panic sel-loff caused by network congestion, the price fell all the way to around $1. After the first round of sell-off, the price of the OP token returned to $1.5.

The poor performance of the Optimism network during the airdrop has shaken users’ faith in Layer 2 scaling. As a leading Layer 2 solution, Optimism’s frequent transaction failures under high network load and high fees comparable to the Ethereum mainnet have further highlighted the difficulty of Ethereum scaling.
Shortly after the airdrop, 20 million OP tokens were stolen, making the situation even worse. Although the incident was due to market maker Wintermute’s failure to deploy multi-sig contracts on Optimism in a timely manner, and Wintermute has announced to take full responsibility, it caused another panic among users and the price dropped to below $0.5. However, the hacker returned the stolen OPs soon and was rewarded with 2 million OPs from Optimism officials.
Instead of being affected by these incidents, the Optimism team continued to put its focus on building a more robust ecosystem and promoting community governance. At present, as the market starts to rebound and users resume their rationality, the price of OP tokens has returned to above $1, a good demonstration of positive attitude among users towards Layer 2.

Conclusion

As a pioneering Layer 2 solution, Optimism has been committed to exploring the optimal path for Ethereum scaling. Although the Optimism mainnet has been online for less than one year, the Optimism ecosystem kept growing, thanks to the design philosophy of EVM equivalence. Further, the sound community atmosphere and management mechanism will also escort Optimism’s development plan. Optimism will definitely set itself apart in the fierce competition on Layer 2 in the near future.