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What is Optimism (OP)?. Optimism is a second-level solution… | by Sunflower Corporation | The Capital | Oct, 2022

by Index Investing News
October 29, 2022
in Cryptocurrency
Reading Time: 13 mins read
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Optimism is a second-level solution (Layer2, L2), which is designed to increase the speed and scalability of the Ethereum network. How does it work, and why do we need it? Let’s find out together!

The Optimism blockchain employs the Optimistic Rollups technology, which reduces transaction fees tenfold when compared to the Ethereum network’s first level (L1) while also making it simple to deploy any smart contracts and decentralized applications written in the Solidity language in the second level network.

The Optimism L2 network has a throughput of 200 to 2000 transactions per second.

The Optimism protocol was developed by Optimism PBC (later renamed OP Labs PC), founded in 2019 in New York. The startup was opened by Jinglan Wang, Kevin Ho, and Karl Floersch, who were previously Ethereum developers.

During its operation, the project received $178.5 million in investments over three investment rounds.

The non-profit organization Optimism Foundation was founded to manage the collected funds and stimulate the development of the ecosystem. It was led by the co-founders of Optimism, as well as Eva Beylin (director of the Graph Foundation), Abbey Titcomb (head of the Radical community), and Brian Avello from the Maker Foundation.

The fund’s powers will be shared in the future with the decentralized management organization Optimism Collective. The OP Labs PBC team launched the Optimism protocol test network in October 2019, the alpha version of the main network in January 2021, and the final release of the main network with EVM support in December 2021.

The Optimism L2 network has a native OP management token, which was launched on May 31, 2022.

The total offer of the OP is 4.3 billion tokens, which will be distributed as follows:

  • 20% — for members of the Optimism Collective community;
  • 25% is reserved for ecosystem funds;
  • 19% will be distributed to users in the form of airdrops;
  • 17% are intended for early investors;
  • 19% — to the team and developers.

The first airdrop of the token turned out to be one of the largest in the history of the crypto industry: since May 31, 2022, more than 248 thousand users of the Optimism ecosystem have received 251 million OP, which amounted to 5% of the total token supply. Another 14% of the issue will be distributed to users through a series of retrodrops.

According to the Optimism documentation, the OP token has the following functions that will be activated gradually:

  • Financing the development of the Optimism ecosystem;
  • Participation in voting for protocol updates and allocation of funds;
  • Participation in project management in the Optimism Collective community.

The Optimism protocol employs Optimistic Rollups technology to boost productivity while lowering transaction costs. The essence of the technology is that the second-level network handles transaction processing and smart contract execution, while the main Ethereum network handles block generation and security.

The Optimism network has its own Optimistic Virtual Machine (OVM), which allows you to run smart contracts and decentralized applications written for Ethereum in the L2 network without any changes.

OVM works on the principle of “optimistic execution” to increase transaction processing speed by not checking each transaction for authenticity. In other words, unlike the main Ethereum network, any transaction in the Optimism L2 network is assumed to be authentic until proven otherwise. This allows you to achieve a performance of 200 to 2000 transactions per second, compared to 10 transactions per second on the Ethereum network.

To ensure security (for example, to avoid double spending), OVM allows network participants to challenge the authenticity of transactions.

Sequencers are special computing nodes that combine hundreds of L2 network transactions into compact “accumulative packages” that are included in blocks in the main Ethereum network.

Within one week, another type of node, verifiers, can challenge the authenticity of transactional proposals sent by sequencers. If the transaction is challenged by the verifier, the entire package is checked by comparing the root states before and after the transaction.

If the verification reveals that the offer is fraudulent, the entire transaction package and the corresponding block are rejected, the vigilant verifier is rewarded, and the sequencer is fined. Thus, verifiers are rewarded for exposing unscrupulous participants, while sequencers are only rewarded for sending the correct transaction proposals.

Because each package contains hundreds of transactions, the gas fee is shared by all users. According to the service l2fees.info, in August 2022, the commission for ETH transfers in the Optimism network fell below $0.04, and for token exchange — below $0.07, which is up to 30–100 times less than fees in the Ethereum network.

Optimism is now the foundation for more than 60 decentralized protocols, cross-chain bridges, and other blockchain projects. Meta Mask, Trust Wallet, Coinbase Wallet, and other popular Web3 wallets support the network. Furthermore, the most important stablecoins are issued on the Optimism blockchain: USDT, USDC, DAI, FRAX, USDD, and so on.

According to the DefiLlama service, the top 5 applications in terms of blocked liquidity (TVL) based on Optimism are as follows:

  • Aave landing protocol;
  • Sinthetix derivatives platform;
  • Decentralized Velodrome and Uniswap exchanges;
  • Pool Together gaming platform.

To help the ecosystem grow, the Optimism Foundation awards grants to developers and teams who launch dApps and Web3 services based on the Optimism protocol. The first round of “retroactive financing” was held in November 2021, with $1 million distributed to 58 projects.

The Optimism ecosystem places a high value on the development of NFT projects. Optipunks, Optimistic Bunnies, Optimistic Loggies, Dope Wars, oe40, tofuNFT, Quixotic, and Circular Art are among the interesting NFT collections.

Several major incidents are associated with applications on Optimism, as they are with other blockchain platforms. In June 2022, a hacker “intercepted” 20 million OP worth approximately $17 million, which the Optimism Foundation sent to market maker Wintermute, but then returned the funds.

Less than a month later, hackers attacked Quixotic, the largest NFT marketplace based on optimism.

Because of the low transaction cost, the Optimism protocol has already saved users more than $1 billion.

The team’s main efforts are now focused on developing a new management system for the L2 network, in which powers will be distributed between the Optimism Foundation and the members of the Optimism Collective.

Optimism Collective, according to the concept published in April 2022, is a decentralized autonomous organization for digital democratic governance created to ensure the rapid and sustainable growth of a decentralized ecosystem.

Optimism Collective will consist of two governing chambers:

  • The Citizens House — includes owners of non-transferable “soul bound” NFTs tied to a specific address;
  • The Token House — includes OP token holders and works like a traditional DAO.

The Merge event, which will complete Ethereum’s transition to Proof-of-Stake in September 2022, is expected to have a huge stimulating effect on the Optimism protocol. First of all, this will happen thanks to the implementation of the Rollup-Centric Roadmap — an unofficial Ethereum roadmap focused on close interaction with L2 solutions to increase scalability.

At the end of July 2022, the Optimism team introduced an Ethereum transaction automation system called Drippie.

If you have anything to add to the Optimism topic, welcome to our comments!
In terms of tracking the updates, subscribe to our Medium Feed.

You can also try your hand at working with cryptocurrency on our platform Sunflower Corporation.
Stay tuned!



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