Interest in Optimism (OP) is high. For example, both CoinGecko and CoinMarketCap gave OP a $1.31 on 21 September 2023.
Optimism was CoinMarketCap’s 13th most trending cryptocurrency on 20 September 2023. Conversely, Optimism was CoinGecko’s seventh most trending cryptocurrency on the same day.
Moreover, CoinGecko named Optimism the 42ndlargest cryptocurrency, while CoinMarketCap labeled OP the 41st largest cryptocurrency on 21 September 2023. Thus, many people will wonder what Optimism is and if it is worth $1.31?
What is Optimism?
Optimism (OP) is a Layer 2 Blockchain built for Ethereum (ETH). To explain, a Layer 2 is a second blockchain. They add to another blockchain to expand its capacity.
Many decentralized finance (DeFi) apps need a Layer 2 because of limited capacity. Ethereum has a limited capacity because of all the encryption. Layer 2 blockchains often have less encryption, which gives them more capacity and speed. In particular, Layer 2 blockchains can process transactions faster and process more transactions at once.
They claim Optimism apps are faster and cheaper than Ethereum apps. Essentially, Optimism’s OP Mainnet is an alternative to the Ethereum Virtual Machine (EVM). The EVM is the digital computer than runs Ethereum. Apps need EVM access to operate on Ethereum.
The Mainnet lets apps run on Ethereum without paying gas fees. Ethereum gas fees are the price apps pay to access the EVM. Gas fees can add up fast. CoinDesk estimates the average Ethereum gas fee was $2.61 on 20 September 2023. Optimism builders claim they have saved users over $3 billion in gas fees.
How Optimism Works
Optimism (OP) works by offer several features that can reduce the costs of Ethereum while increasing its speed and capacity. Those features include:
Optimistic Rollups. An Optimistic Rollup is a Layer 2 protocol that extends the throughput of Ethereum’s base layer. Throughput is the amount of data that passes through a blockchain. Theoretically, Optimistic Rollups increase the amount of transactions Ethereum can process.
The Unipeg Optimistic Rollup Testnet. This feature allows developers to test optimistic rollups in Optimism.
An EVM Compatible Testnet. This allows Optimism developers to test protocols on the Ethereum Virtual Machine (EVM).
The Alpha Mainnet is a bridge between blockchains. Hence, this feature allows Optimism apps to connect to the Binance Smart Chain or Polygon.
How Optimism connects with Ethereum (ETH)
An EVM Equivalent Mainnet. EVM Equivalence allows smart contracts to run on both the Ethereum Virtual Machine and Ethereum Equivalent Chains, such as Optimism. EVM Equivalence is vital because smart contracts perform many tasks on blockchains. For example, a stablecoin’s smart contract makes payments in fiat currency.
You need EVM Equivalence for smart contracts to operate on multiple blockchains. For a stablecoin to make payments on both Avalanche and Ethereuem, for example.
Open Mainnet. A Mainnet is the product or blockchain service the public can access. Hence, the public can access Optimism’s services.
Bedrock. Bedrock reduces transaction fees by compressing batches. They claim Bedrock can speed up Layer One transactions in rollups. This can lower gas fees by reusing coding and improving Node Performance.
What is the Optimism Superchain?
Next Gen Fault Proofs. Next Gen Fault Proofs decentralize the Sequencer Node. The Sequencer is the mechanism that approves the Ethereum Transactions on Optimism. This reduces the possibility that Optimism’s administrators can censor, monitor, or block transactions.
Multi-Proof. They claim that the OP Mainnet is multi-proof. This means the OP Mainnet is a modular blockchain that can use any type of proof.
L1 Governed Fault Proofs. They call Optimism a Superchain because it can theoretically merge with other blockchains through L1 Governed Fault Proofs.
They call the Superchain a network of Layer 2 chains or OP Chains that share security, a communication layer, and an open source technology. If this works, it will allow protocols to trade between OP Chains.
Unlike current Layer 2 chains, they will standardize the OP Chains. Hopefully, this makes OP Chains interchangeable protocols that can operate across many blockchains.
An interesting way to think of the Superchain is as a giant blockchain connecting many blockchains. If the Superchain works, it could enable an Ethereum (ETH) protocol to operate on the IBM, Tron (TRX), Steller (XLM), NEO (NEO), Binance Smart Chain, Corda, multichain, EOS (EOS), the Hyperledger Fabric, the Lightning Network, Polygon (MATIC), and Avalanche (AVAX) blockchains,
How they decentralize Optimism
A Decentralized Sequencer. Currently, the OP Foundation (the organization that built Optimism) runs the OP Mainnet’s sequencer. A blockchain sequencer is a mechanism that establishes how and when a blockchain protocol processes transactions.
Thus, the OP Foundation decides when and how Optimism process transactions. It also means the Foundation decides what transactions they process.
This creates conflicts of interest. It also means Optimism is a centralized protocol, so it is not a decentralized finance (DeFi) app. Finally, centralization creates a massive security problem. For example, there is only one place for crooks to go to steal money and identities from Optimism.
The Optimism Ecosystem
Impressively, the Optimism Ecosystem contains hundreds of apps. Optimism contains so many apps that it they need a special feature to sort through the apps.
They call this feature Optimism Quests. Quests simplify the exploration of Optimism. Interestingly, Quests users can mint a Non-fungible Token (NFT) to commemorate the quest. One use of the Quests is to educate users about Optimism and DeFi.
Notable Optimism DeFi apps include:
QiDao allows people to borrow stablecoins without interest. Rubicon supports decentralized trading. Synapse and Velodrome support cross-chain transfers. Synthetix allows users to stake and earn yield on tokens. Lyra allows users to trade options. Kwenta supports future trading.
PoolTogether allows users to pool assets and win prizes for pooling assets. The Perpetual Protocol supports perpetual swaps. SushiSwap is a decentralized platform for lending, borrowing, leveraging, and stacking yields.
Importantly, you can access popular wallets such as Brave, CoinBase, and Metamask through Optimism. Users can also access the world’s largest blockchain asset exchange, Binance. Notably, Moon Pay supports cryptocurrency purchases, credit card purchases, bank transfers, and Apple Pay transactions on Optimism. Arrakis concentrates and manages liquidity.
What Value does Optimism Offer?
Mr. Market thinks Optimism offers some value. For example, CoinMarketCap gave Optimism a $1.31 Coin Price and a $1.047 billion Market Cap on 21 September 2023.
In contrast, CoinMarketCap gave Optimism a $5.634 billion Fully Diluted Market Cap, and a 24-Hour Market Volume of $103.043 million on 21 September 2023. They base those numbers on a 758.517 million OP Circulating Supply, and a 4.94 billion OP Total Supply.
Meanwhile, CoinGecko gave Optimism a $1.31 Coin Price, a $1.049 billion Market Cap, a $5.638 billion Fully Diluted Valuation, and a $96.677 million 24-Hour Trading Volume on 21 September 2023. They base those numbers on a 798.517 million OP Circulating Supply and a 4.295 billion OP Total Supply.
I think Optimism could achieve immense value because of its use. They claim Optimism supported over $2 billion in on-chain value. Plus, they claim the OP Mainnet had processed over 141 transactions as of 21 September 2023.
How to Add Value to Optimism
I think Optimism has some flaws. For example, the OP site does not mention Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) capabilities. This could get Optimism in trouble with regulators that require FinTech platforms to comply with Know-Your-Customer and Anti-Money-Laundering laws.
However, I think they can correct this flaw by adding apps with KYC and AML capabilities to Optimism’s ecosystem. Another fix is to require all Optimism Protocols to comply with KYC and AML.
I think Optimism has a bright future which makes it worth $1.31.