Optimistic about Optimism— The bull case for Optimism

In conclusion

It continues to be a teeth-gnashing bear market, despite the recent glimmers of hope with multiple ETF filings and XRP’s purported court victory – the staggering reality is that CT remains trapped in a web of viciousness and greed, overlooking the Pros of good tech, in favour of airdrops and incentives. 

And when the timeline of events seems boring, you can be almost sure that telegram groups and bots are overworking – with whatever is left of the thin liquidity in the space going into punting on strange casinos, rats, or hamster races. 

And hey! This is certainly not us trying to virtue signal anyone, but when no one else is left to do the good work of reminding everyone that this is a marathon and not a sprint and we do have some incredible work going on BTS, then someone’s gotta do the job right? right?

So! Here we are, again, unaffected by the vampire’s bite, appreciating good tech regardless, analysing the prospects, and doing what we can to red-pill you degenerates. It is with this motive in mind that we’ve decided to put the spotlight back on Optimism in today’s read.  

TL:DR 

Like Arbitrum, Optimism is a layer 2 network developed to enhance the scalability of the Ethereum network. Its scalability is achieved through the implementation of optimistic rollups, wherein multiple transactions are consolidated into a single transaction off-chain before being sent to Mainnet. 

Hold up! If the above paragraph feels like absolute jargon to you, then feel free to go over this article we released in 2021 about Arbitrum and optimistic rollups. You'll understand it much better, especially because no one is better at ELI5 than the grand sage of blocmates, Grant.

Now, back to some facts about Optimism. 

Quite distinctive in comparison with other L2s, the development of Optimism is led by a community of developers who share a common goal of achieving Ethereum's scalability (something about a Superchain) and not just another team. Consequently, the platform is engineered to closely replicate the functionality and behaviour of the Ethereum Mainnet.

Look mate, the bottom line is that Optimism is a cheaper and faster alternative to using Ethereum (well, except you’re “rich rich” and don’t care about fees), especially after the launch of Bedrock; optimizing batch compression thus achieving a 56% reduction in transaction fees. Moreso, as an open-source tech, it is attractive to developers having been forked an impressive number of times. Being built by a community and not just a team sort of eliminates a central point of failure making it more attractive to decentralized protocols.

Since the first and second phases of the $OP airdrop (Optimism’s governance token), the growth of the protocol has been quite gradual, unlike Arbitrum which has seen a massive influx of projects natively built on it. However, things are getting heated up and the price action of the OP token in recent weeks is an indicator that things are not as quiet on this network as it seems, in fact, I think Optimism might be catching up to its twin, Arbitrum, faster than we envisage. We’ll start with the current metrics. 

Current Metrics and Traction

We may not be able to make a case for NFTs, specifically PFPs on Optimism right now, although a good argument would be that the NFT space on almost every network chain where there’s been a summer, is pretty much hanging on for dear life at the moment. Nonetheless, when it comes to the DeFi world, there are things to take note of.

One of these things is that there’s been some steady growth in the number of active users on Optimism. When compared to that of Arbitrum, the figures are pretty close despite Arbitrum having twice the value of total liquidity locked on Optimism, as well as more than twice the number of protocols built natively on it.  

A step in the right direction if you ask me. However, before we look inside the protocol or talk about some of the promising projects building on Optimism, we will assume you are new to Optimism and show you how to get started.  

Getting Onboard Optimism

To start using Optimism or interacting with Dapps/contracts on the network, ensure you either have installed on mobile/browser, a non-custodial wallet such as:

  • Metamask
  • Coinbase

The next step is to proceed to add the Optimism network to your wallet. To do this, 

  • Click on “add network” 
  • Input the following: 

Network name - Optimism

Token - ETH

RPC - mainnet.optimism.io

Chain ID - 10 

Block explorer - Optimistic Ethereum Explorer

Website - https://www.mainnet.optimism.io/ 

  • Proceed to add network. 

Alternatively, you can use Chainlist from the DeFillama team and connect to your chosen RPC on Optimism through this link. 

You can bridge your ETH from mainnet or Arbitrum to Optimism using Stargate, Orbiter, Optimism gateway, Synapse, and Hop. Quite important to state that ETH is still the gas token for Optimism and the $OP token plays the governance aspect. 

Traction

As I mentioned earlier, Optimism is showing positive signs and beyond the number of active users growing, Optimism’s TVL has been on the increase over the last 30 days. Some of the projects that have garnered traction as a result are: Velodrome, a liquidity marketplace with the release of V2 has seen a >30% increase in TVL in the last 30 days. On the other hand, Synthetix, a Synthetic tokens protocol has somehow generated more revenue than token incentives in the last 30 days, as well as Sonne finance with an all-around positive performance over the same timeframe.

Source: Token Terminal

Source: Defillama

Source: Token Terminal

Core Optimism Projects: 

Almost every L1 and L2 after Ethereum have been victims of simulation, attracting replicas of innovative projects built on Ethereum Mainnet. While Optimism has not been spared from this plague, some of the projects built natively on Optimism have reasonable moats, a few of which form the core of Optimism. Two examples are: 

Velodrome - Although it is yet another Solidly fork, Velodrome is a DEX on Optimism built as a solution for projects on optimism to efficiently incentivize liquidity for their own benefits. 

Velodrome is pretty interesting as the fees are super low, yet they’ve generated over $2.4m in protocol revenue in a bear market with over $20m in fees and bribes. 

Source: Dune dashboard

Version 2 of Velodrome is adopting features bespoke to Uniswap such as CLAMM as well as customizable fees, and an automated voting management system (Relay). In addition, what makes Velodrome not just another Solidly fork, is the fact that there’s a fixed emission schedule, zero vesting tokens, and total fees go back to the users. Sweet! Velo is surely one to keep an eye on as they’re definitely at the forefront of liquidity incentivization on Optimism. 

Sonne Finance - Well for starters, we once asked “what the Optimal strategy for ve(3,3) was" on Twitter and were gracefully indulged by the Sonne finance team. 

Sonne is the first decentralized lending protocol built natively on Optimism — a simulation for Compound but with an interesting moat as it takes advantage of Velodrome’s growing liquidity and token incentive design, introducing a unique bribe-reward mechanism, which forms the basis for their reply to our question. 

The reply; 

  • Step 1: Launch your liquidity on Velodrome
  • Step 2: Bribe the voters on a schedule
  • Step 3: Increase the farm APR for your liquidity pair, therefore earn more for your POL
  • Step 4: Share 100% of the earned revenue from the POL with your stakers
  • Step 5: Repeat (2-4)

Just as we’ve shown in the infographic above, Sonne’s performed well in recent weeks and is also a project worth keeping an eye on. 

Moving forward, the phrase "Devs do something" is commonly used as a meme, but is there any truth to developers taking action within the Optimism ecosystem?

Well, there are several potential catalysts supporting the positive indications mentioned in a few paragraphs above, indicating that multiple developers are actively building on Optimism. If you don't mind, we can delve into a few of these catalysts.

Catalysts 

Build on Base - Apart from the phrase “we have no plans to issue a new network token” that's boldly written on their Twitter bio, which is bottom line aggravating for the category of CT mentioned in the first paragraph of this article, BOB is fascinating because they’re gonna be an L2 built on the… take a guess… “OP stack”.

While the name Build on Base or BOB (a more convenient name and an epic wordplay for Bob the Builder), might be a bit off and strange, it’ll interest you to know that this Ethereum L2 is a Coinbase incubation. I know you’ve probably raised your eyebrow because Coinbase still has some regulatory hurdles to deal with, and you’re not alone.

However, the main thing here is that a new L2 built using the OP stack sounds pretty bullish for Optimism, considering Coinbase as the second largest crypto exchange in the world does come with a lot of users (especially those in the US) who’ve got bucks, now that’s something worth mentioning. 

World Coin - Timelines are different for every crypto enthusiast but you’ll agree that one of the most talked about projects this year is something called “World Coin”.

Hey! Look, I’m not gonna lie that I find the name of this project pretty cringe, but I’ll rather keep this to myself — Anyway, Worldcoin is the brainchild of OpenAI founder, Sam Altman, Max Noverdsten, and some other guy called Alex Bania, and what they’re are trying to do is build three parts (world app, world ID, Worldcoin token) to the world’s largest identity and financial public utility.

Audacious to say the least, but I mean it’s the same guy who built ChatGPT, so you and I might just want to be a bit more Optimism, sorry, Optimistic that Sam and friends could possibly pull this off. Albeit, what is of interest to Optimism is that they’ve chosen to transition the World App and World ID products to Optimism and have just recently completed the move to Optimism Mainnet. We’ve previously whipped out an article on these guys if you wanna know more. 

A16Z chain and influence - A16z is notorious for investing in crypto, and now, they’ve decided to build a network chain themselves — did I hear someone say bear market effect, or? Anyway, whatever this is, it’s surely interesting. How this relates to Opimism, you could almost guess it! The OP stack is gonna be used here as well to build an Optimism-based rollup called Magi. 

OPBNB - It’s literally raining L2s and of course, the BNB ecosystem wants in on some of the action. As you probably might have guessed, OPBNB is yet another layer 2 solution built with the OP stack, and now on Testnet. 

If you have been paying attention, you’ll most likely have observed that one thing most of these catalysts have in common is the OP STACK. What this is, we’re about to find out. 

WTF is an OP STACK? 

Pioneers in what this is, Optimism is built using a set of software known as the OP STACK. 

In a more technical way, Optimism has been described as “the standardized, shared, and open-source development stack that powers Optimism, maintained by the Optimism Collective.” 

Basically, picture it as the Windows version of your desktop but this time, it is Open source allowing anyone to build on it and around it. 

The goal here is to create an ecosystem of “shared, high quality, and open-source” chains built on the stack and interoperable with Optimism, quantifying into what’s called a “SuperChain” — a network of L2s sharing security, communication layers, and a common development stack. 

If you’re familiar with Cosmos, this definitely smells like the “App chain thesis”, doesn't it? 

Furthermore, what could go through the mind of any daydreamer reading all of this is, only if the OP token was more than a governance token! Fren, I agree that the possibilities are gigantic and the OP token, is grossly undervalued if so. 

Nonetheless, my impulse is to leave you with another “Conspiracy Theory” — what if every chain built using the OP stack, adopts the OP token as their governance token? 

Summary - Come for the incentives, stay for the tech 

A lot is happening in the Optimism world and the above is just a speck in the grand scheme of things. It’s at this point that I feel comfortable tagging Optimism as a “sleeping beauty”. 

One theory we have at bloc is that projects that eventually succeed are the ones with an ecosystem built around them, say Curve, GMX, Uniswap etc. So, in my opinion, the sound of a SuperChain is nothing but music. And with 85% of the OP token yet to be released, the feeling is that a third airdrop is likely. 

In whatever case, we’ll say, come for the incentives, but stay for the tech as there’s much more to be gained here and the signs are already showing. 

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