Optimism Rollup (OP) is a solution that extends Rollup Layer 2 to increase the throughput of Ethereum by doing some computation off the mainnet mainchain (L1). In technical terms, Optimism is an optimistic protocol rollup.
This article provides an overview of the protocol and looks at project performance using data from Token Terminal.
Optimism was born with the aim of making the network Ethereum better through increased transaction speed and transaction throughput (TPS). Faster finality (complete termination of transactions) with lower transaction costs will greatly improve user experience.
When the popularity of the network Ethereum increasingly, it is difficult to scale up blockchain This has become a sore point for users who have to pay very high transaction fees to complete their tasks. The reason is because of the blocks of Ethereum has a rather limited maximum computation capacity (about 35,000,000gas) and new blocks are generated at a near-constant rate. As the number of users and decentralized applications (dapps) grows, increased demand has pushed gas prices to absurd levels.
Optimism is a blockchain is designed to help Ethereum scale and belongs to the group of Layer 2 (L2) scaling solutions. L2 adds another layer of computation on Layer 1 (L1), i.e. Ethereum Mainnet, but at the same time still take advantage of the security features of L1. Optimism executes transactions on L2 and sends them in batches to L1 for data retention. This results in about 5-20 times lower gas fees depending on the type of transaction.
The name Optimism also indicates that the project chose the optimistic rollup method. Optimistic rollup assumes that every transaction is packaged and sent to Layer 1 that right. This rollup method is the opposite of Zero Knowledge (ZK) rollup.
In recent years, interest in blockchain technology has grown exponentially, and Ethereum has become the leading blockchain for deploying dapps. Decentralized Finance (DeFi), NFT and other blockchain applications have grown from spontaneous movements into multi-billion dollar industries. Demand for blockchains (block space) and dapp Scalable is higher than ever, and investors are willing to fund teams building solutions that scale.
Optimism is part of the growing Ethereum ecosystem. Ethereum is the current leading blockchain for dapps and DeFi. Demand about ETH hit an all-time high in late 2021 as the circulating market cap of ETH (i.e. the number of ETH multiplied by its price) reached more than 500 billion USD.
An upcoming major Ethereum upgrade expected to happen in 2023 will introduce sharding (i.e. parallel processing of transactions on separate blockchains) to dramatically increase Ethereum's throughput. Until this point, demand for L2 scaling solutions is expected to remain high. Furthermore, if blockchain technology is mass-adopted, global demand will be enough for multiple scaling solutions and parallel blockchains that develop concurrently and co-exist.
In short, Optimism's closest competitor is Arbitrum. Like Optimism, Arbitrum is an optimistic rollup designed to scale Ethereum. Currently, Arbitrum is significantly larger than Optimism based on total locked capital value (TVL), i.e. the value of the asset on the blockchain.
Several other zero-knowledge rollups, i.e., L2 scaling solutions based on complex algorithms for validating transactions are also expected in 2022 and beyond.
Ultimately, the success of Optimism will depend on the success of the entire Ethereum ecosystem, and therefore other scaling solutions need not be considered direct competitors. Other L1 blockchains like Solana compete more directly with the Ethereum ecosystem.
Optimism is an independent blockchain but relies on the security of Ethereum. OP is fully compatible with the Ethereum Virtual Machine (EVM), making it very familiar to existing users and developers of Ethereum. The implementation of smart contracts on Optimism is akin to Ethereum, and users can transfer assets between blockchains using bridges.
Optimism blocks are stored on Ethereum. New block production is coordinated by a program called a sequencer, which allows instant transaction confirmations and state updates, generation and execution of L2 blocks, and sending transactions to L1 in batches. ). Since interactions with the sequencer have near-instant latency, the user experience will be significantly faster than on Ethereum. Currently, the sequencer is centralized and operated by the company behind Optimism. The project has stated that their aim is to decentralize control over and decentralize this sequencer in the near future.
Optimism is developed by the US-based company Optimism PBC. Optimism PBC has raised nearly $180 million in two funding rounds led by well-known investment funds Andreessen Horowitz and Paradigm leader. The Optimism Foundation is a non-profit organization dedicated to developing the Optimism ecosystem. Optimism Collective is a decentralized autonomous organization (KNIFE) is designed to help with project management in the long term.
Users pay transaction fees including L1 security fee and L2 execution fee. L1 security fees are paid to miners on Ethereum and L2 execution fees are paid for running the sequencer.
This section provides an overview of Optimism's historical performance using data Token Terminal.
Note that even though Optimism launched earlier, data is only visible from November 11, 2021. This is when Optimism was significantly redesigned to make it more EVM-like, resulting in a reboot. entire blockchain.
The figures below show the value of fees paid by Optimism users and how revenue is split between the protocol (sequencer) and supply-side participants (Ethereum miners). Protocol revenue typically represents only a few percent of total revenue.
The success of Optimism depends on the success of the dapp run on it. The figure below shows the total value locked (TVL) of the dapp largest on Optimism. Although TVL hasn't increased recently due to the fact that we are in a downtrend, the DeFi ecosystem has diversified considerably as more dapps have been launched.
Optimism launched the OP governance token in early June 2022. OP's initial supply is 4.3 billion with an inflation rate of ~2% per year. The figure below shows the given market capitalization phase OP's complete dilution since debut. The market currently values OP at around $5 billion.
Optimism is one of the leading Ethereum scaling solutions. It has been proven to reduce gas fees and efficiently store Ethereum-based dapps. OP's DeFi ecosystem is growing and OP will be able to fund a lot of new dapps using their own tokens. However, OP will face significant competition from current and future projects.
Link Original post: Research series - by Oskari - Token Terminal (substack.com)