Optimism (OP) Things You Need To Know Before Investing

Riya KapoorSeptember 9, 2022

3 minutes read

Table of Contents

What Is Optimism (OP)?

On top of Ethereum, Optimism (OP) is a layer-two blockchain. Using optimistic rollups, op makes use of the security features of the Ethereum mainnet to extend the Ethereum ecosystem. In other words, transactions are logged on Op in an unreliable manner but are eventually safeguarded on Ethereum.

With more than $300 million in TVL, optimism is one of the most significant scaling solutions for Ethereum. It is home to 35 protocols, the biggest of which are Velodrome (VELO), an AMM, Uniswap (UNI), a DEX, and Synthetix (SNX), a derivatives exchange. By connecting the chain to their Metamask and bridging coins like ETH to the L2, users can start their trip on Optimism. Op held a much-anticipated airdrop of its OP token on May 31, 2022. The popularity of the airdrop caused the Op blockchain to temporarily lag.

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Who Are the Founders of Optimism?

The Optimism Foundation, a charity devoted to expanding the Optimism ecosystem, is in charge of Op. Similar to Ethereum, Op wants to develop into a fully decentralised, non-profit public good. Op promises to provide infrastructure that fosters the expansion and sustainability of public goods and is fully funded by donations and grants. L1 guided fault proofs are a goal of Optimism’s roadmap for 2024.

What Makes Optimism Unique?

Optimism is designed around four core tenets:

Simplicity
Pragmatism
Sustainability
Optimism

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Building a layer-two solution for Ethereum, optimism strives for the fewest possible moving elements. In actuality, this means employing tested Ethereum infrastructure and code. Thus, op strives to maintain the simplest feasible code and integrate seamlessly with pre-existing codebases.

The ecosystem places an even greater emphasis on pragmatism and is guided by the demands and limitations faced in the actual world by its own team and the users who interact with the ecosystem. As a result, Op intends to incorporate features like EVM equivalence gradually and build iteratively.

The idea of long-term sustainability and avoiding taking short cuts to scalability is essential to optimism’s design methodology. To scale the network, it utilises optimistic rollups and makes use of Ethereum’s consensus system. User transactions are batched up and submitted to the L1 while blocks are generated and executed on the L2 (Op) (Ethereum). Transactions are immediately approved or refused in the L2 since it lacks a mempool. The Ethereum consensus method ensures security while guaranteeing a seamless user experience.

Without direct verification of their legitimacy, transactions are posted to Ethereum and are subject to dispute for a specific amount of time (currently seven days). A transaction is then regarded as being completed. Because of this, Op to Ethereum withdrawals take seven days to process.

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How Many Optimism (OP) Coins Are There in Circulation?

Optimism aims to create an ecosystem, where value is generated for its three constituencies:

Token holders receive value through the productive re-deployment of sequencer revenue.
Contributors and builders receive value from retroactive public goods funding.
Users and community members receive value from ongoing airdrops and project incentives.

In other words, demand for OP block space increases demand for blockspace by generating cash that is given to public goods. Because of this, Optimism’s token distribution is as follows:

Ecosystem fund (25%): split between the governance fund (5.4%), the partner fund (5.4%), the seed fund (5.4%), and unallocated (8.8%).
Retroactive Public Goods Funding (20%)
User airdrops (19%): split into a first airdrop of 5% and subsequent airdrops yet to be announced.
Core contributors (19%): people who help bring the Op Collective from concept to reality
Investors (17%)

At a 2% annual inflation rate, there are 4,294,967,296 OP tokens in the original supply. The Foundation will be given access to 30% of the initial token supply in Year 1 for distribution. Token owners will vote to decide the Foundation’s yearly OP distribution budget after the first year. The following annual allocations are what the Foundation anticipates seeking:

Year 2: 15% of the initial token supply
Year 3: 10% of the initial token supply
Year 4: 4% of the initial token supply

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How Is the Optimism Network Secured?

Rollups that encourage optimism are used. Optimistic Rollups (ORs) can broadcast merkle roots of the transactions to the first-layer blockchain periodically while trustlessly recording transactions on the second-layer blockchain. The verification of these merkle roots by external validators prevents money from being withdrawn from layer-twos through optimistic rollups (usually by one week).