What Is Optimism Crypto: Ethereum’s Premier Layer-2?

What makes Optimism a unique contender in the L2 race?

Well built man raising an Optimism coin on a white cloud.
Created by Gabor Kovacs from DailyCoin

What is Optimism? Is it an innate sense of positivity; a belief that everything will turn out for the best? 

To ordinary people, yes. That’s exactly what it is. For crypto enthusiasts, on the other hand, Optimism is something quite different.

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Optimism is an Ethereum Layer-2 scaling solution that aims to make Vitalik Buterin’s blockchain faster, affordable, and ultimately more accessible. As the Ethereum blockchain has grown in popularity and usage, it’s become clear that the network’s sluggish speeds and extortionate gas fees are ill-equipped for crypto mass adoption.

What is Optimism (OP), and how does it work? In a crowded niche, what separates Optimism from the dozens of other Layer-2 blockchains like Arbitrum (ARB) or Polygon zkEVM

What is Optimism (OP)?

Optimism OP crypto logo.
Source: Optimism

Optimism, known by its native token symbol OP, is one of the Ethereum network’s leading Layer-2 scaling solutions. It resolves the litany of issues plaguing the Ethereum blockchain, namely scalability and high transaction fees. 

The Optimism project is spearheaded by the Optimism Foundation, a passionate team of developers and decentralization enthusiasts dedicated to improving Ethereum (ETH) and ensuring its long-term growth and sustainability. The foundation’s work has given birth to one of the most promising Layer-2 solutions, with Optimism going from strength to strength since its launch.

How Does Optimism Work?

Creatively named, Optimism is what crypto people call an Optimistic Rollup. In simple terms, Optimistic rollups are a method of batching groups of Layer-2 blockchain transaction data into one ‘rolled up’ transaction that can then be secured on the Ethereum mainnet, a Layer-1.

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Processing transactions off-chain significantly reduces the load on the main network, meaning that Layer-2 users can enjoy all of Ethereum’s functionality without suffering its low speeds and crippling gas fees.

A sequencer handles optimism block production. The sequencer is responsible for instant transaction confirmations and blockchain state updates, constructing and executing Layer-2 blocks, and submitting user transactions to Layer-1.

Why are they called Optimistic rollups, you ask? When it comes to blockchain security, Optimism operates on the principle of ‘fault proofs.’ This means that node operators operate on the ‘optimistic’ approach that the state of the blockchain is correct, secure, and doesn’t require proof of validity. It is removed and replaced if this state is challenged and found faulty.

As is always the case among Layer-2s, Optimism runs an EVM (Ethereum Virtual Machine). This makes it easy for Ethereum developers to redeploy their favorite EVM-based dApps and smart contracts directly on Optimism and gives users a sense of familiarity with the network.

The Optimism Token

At the heart of Optimism is the OP token, the native cryptocurrency token of the network. OP is an ERC-20 token that plays a crucial role in the governance and future development of the Optimism network, serving as the requirement for OP community members to join and contribute to decision-making processes. It may come as a surprise, but OP is not used to pay Optimism gas fees.

One of the largest crypto airdrops to date, the OP token was distributed to hundreds of thousands of Optimism wallets. Those lucky qualifying addresses were people who’d positively contributed to Optimism’s growth, whether they were DAO voters, multi-sig signers, or simple users who interacted with Optimism dApps. 

OP’s first airdrop shared over 200M OP tokens and marked the birth of Optimism’s governance model, known as the Optimism Collective. This governing body collective comprises two separate houses: The Token House and the Citizens’ House.

Comprised of OP token holders, The Token House handles protocol governance. Through decentralized governance proposals, the Token House manages everything from protocol upgrades to inflation adjustments, treasury appropriations, rights protection, and governance fund grants.

On the other hand, the Citizens’ House is an experimental attempt at a non-plutocratic governance model, which aims to draw power and influence away from crypto whales. The Citizen’s House manages retroactive public goods funding, which rewards builders and developers who create products and services that grow the Optimism ecosystem.

Optimism Ecosystem

As you’d expect from a top Layer-2 network, the Optimism ecosystem is a vibrant and dynamic space with an excellent variety of dApps. Thanks to roll-up technology, Optimism is paving the way for a new era of Ethereum-based applications that are faster, cheaper, and more efficient than what’s available on the mainnet.

DeFi

Decentralized Finance, or DeFi, is undoubtedly one of the most transformative applications of blockchain technology. Optimism’s EVM compatibility and low fees have made it the perfect playground for creative DeFi applications.

Classic decentralized exchanges like Uniswap and Sushiswap have both moved in and set up camp on Optimism, but they’re outclassed in TVL (Total Value Locked) and trading volume by Velodrome, Optimism’s native DEX.

Sonne finance site.
Source: Sonne Finance

Other DeFi platforms on Optimism can offer financial services like lending, borrowing, and yield farming through popular platforms like AAVE and Optimism’s dedicated lending market, Sonne Finance. Synthetix (SNX), another popular application on the network, supports derivatives and synthetic asset trading. 

NFTs

While Optimism DeFi is a force to be reckoned with, NFTs on the network have struggled to stay relevant. What’s more interesting is that this trend is consistent across all Layer-2 networks, not just Optimism. 

Even though Layer-2 networks, whether they’re optimistic rollups or zk-rollups (zero-knowledge), make it cheaper and easier to trade and mint NFTs, NFT culture still resides largely on Layer-1 networks like Ethereum and Solana (SOL). 

Despite iconic NFT marketplaces like Opensea integrating support for Optimism, NFT trading volume is almost non-existent. 

Optimism nft market.
Source: Quix

A quick look at the top collections page on Quix, Optimism’s top NFT marketplace, shows that the last week of trading volume barely tips over 0.1 ETH. Opensea doesn’t fare much better, with the world’s most recognizable NFT platform tipping the scales at around two ETH per week. 

The Optimism Superchain

To expand Ethereum’s capabilities further than we’ve ever thought possible, Optimism has set out to build a horizontally scalable network of blockchains called the Optimism Superchain. With the vision of growing a wider network of standardized, open-source Layer-2 networks, the Superchain tackles Ethereum’s scalability crisis from a new angle.

The central engine of the Superchain is the OP Stack, an open-source development toolkit that unifies all Superchain networks and ensures they’re all beating to the same rhythm. It guarantees that all networks are built using the same security features and communication systems to maintain a cohesive ecosystem.

Moreover, the Superchain introduces a new revenue model that rewards developers with fees from their respective chains and applications. Optimism’s Superchain has proven a popular choice for large-scale businesses, including Worldcoin (WLD) and Coinbase’s Base Chain.  

Optimism vs. Arbitrum

Two names reign supreme in the fierce and competitive race to become the ultimate Ethereum scaling solution. At face value, there’s not a huge difference between Optimism and Arbitrum. Both networks are optimistic rollups that improve Ethereum’s scalability.

Underneath the hood, the main difference is how they handle fraud proofing. While Optimism uses single-round fraud proofs, Arbitrum takes this one step further with multi-round proofs. The result? Optimism is a faster network, but it runs the risk of having higher gas fees than Arbitrum during periods of Ethereum congestion.

Optimism vs Arbitrum stats.
Source: DefiLlama

Diving into the on-chain metrics, Arbitrum is king in the eye of DeFi users. According to DeFiLlama, Arbitrum has more than double Optimism’s TVL (Total Value Locked) and almost 3x as many protocols built on the network. But if you’re an Optimism fan, don’t lose heart.

Optimism growth stats.
Source: Artemis

Recent trends indicate a change in the guard. Over the past few months, daily transactions and active addresses on Arbitrum have steadily declined, while the same metrics on Optimism show sustained growth. 

Optimism Pros and Cons

Should we be feeling optimistic or pessimistic about Optimism? Let’s dive into the pros and cons.

Pros

  • Scalability – Optimism offers greater transaction speeds and throughput than the Ethereum mainnet, making it better suited to supporting a large user base.
  • Optimism Superchain – The Optimism Superchain provides a new approach to Ethereum scaling by expanding horizontally and vertically.
  • Affordability – Along with improved scalability, Optimism boasts lower gas fees, making it cheaper to use and lowering the barrier to entry.
  • Compatibility – Courtesy of the EVM, Optimism is designed to be fully compatible with the Ethereum ecosystem’s existing smart contracts. 
  • Security – Like most Layer-2s, Optimism leverages the security of the Ethereum network, providing a level of security that matches the mainnet.
  • Decentralization & Community – With the introduction of the OP token and the Optimism Collective governance model, Optimism is decentralized and community-driven.

Cons

  • Withdrawal Delay – Transferring assets from Optimism to the Ethereum mainnet often involves a seven-day withdrawal delay. This could be inconvenient for users who need to move their assets quickly.
  • Early Stage Development – While Optimism has shown much promise, it’s important to remember that it’s still in the early stages of development. 
  • Competition – Optimism faces stiff competition from other Layer 2 solutions, such as Arbitrum and zkSync. The network’s success depends not only on its own merits but also on how it stacks up against its rivals.

On the Flipside

  • Optimism is just one Layer-2 provider among a sea of competitors. Dozens of Layer-2 networks are joining the race, some with greater resources and more modern infrastructure. While Optimism was one of the first Layer-2s to hit the market, there is a chance its competitors will outperform it. 

Why This Matters

Ethereum is undeniably the largest Layer-1 blockchain in the industry. However, its scalability concerns make it unusable for most of the global population. Optimism resolves these problems while retaining a focus on decentralization that Ethereum can be proud of.

FAQs

Does Optimism use ETH?

Yes, the Optimism blockchain uses ETH as its gas token. This means you’ll need to pay a small gas fee in each to complete a transaction on Optimism.

What is the difference between Optimism and Polygon?

While Optimism is an optimistic roll-up, Polygon is a suite of products and services, including the Polygon sidechain and zkEVM.

Where can I buy OP?

You can buy OP on top crypto exchanges like Binance, Coinbase, and KuCoin.

What is the best Layer-2 crypto?

This is a matter of personal preference. However, looking at the on-chain metrics and statistics, we see that Arbitrum is the most popular Layer-2 network, closely followed by Optimism and zkSync.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Finn Miller

Finn Miller is a New Zealand-based blockchain writer for DailyCoin who specializes in simplifying complex blockchain topics. He is experienced in crafting whitepapers, researching on-chain data, and advising emerging crypto projects, and uses his unconventional approach to learning and passion for knowledge to provide cornerstone educational content for readers of all levels. When not exploring the depths of DeFi, Finn can be found exploring his other passion, the great outdoors.