The pain points of Market
Optimism(OP) is a rollup solution for Ethereum Layer2 scaling. OP aims to alleviate the congestion of Ethereum mainnet and lower the gas fees, which both are commonly known market pain points. Vitalik Buterin holds a high expectation on the development of OP.
Layer-1 and Layer-2
“Layer-1” refers to the basic main blockchain architecture, which is a base protocol of blockchain. The common blockchain programs such as BNB, ETH, Solana and BTC are all “layer-1”s. “Layer-2” is normally a third-party network built at the top of layer-1 to boost the efficiency of the underlying blockchain. For example, Bitcoin is a layer-1 network, while the lighting network is a layer-2 network.
Layer-1 network is normally a serial processor, in another word, transactions are stacked one on top of the other. Obviously, transaction requests need to be fulfilled by order, which can leads to network congestion and high transaction fees very easily.
In order to scale Layer-1 network, several technology solutions have been implemented,
● Increasing block size to contain more transactions;
● Shifting the consensus from POW to POS;
A famous example of increasing block size is the SegWit of BTC. The block size of BTC is limited under 1 MB by its designer Nakamoto Satoshi. Thus, the Bitcoin Core raised the scaling solution called SegWit (Segregated Witness). Segwit segregates data of a transaction into two sections. Details of transactions like addresses and amount are still stored in block, whereas the “witness data” containing transaction signatures are moved from the block. Consequently, a block can include more transactions. Thus Segwit increases the capacity of Bitcoin network significantly without increasing the 1MB block size of BTC. In August 2017, SegWit was achieved through a soft fork of the Bitcoin network.
Another hot Layer-1 scaling way is sharding. Sharding origins from database management. Taking the sharding of Ethereum 2.0 for example, every single node does not need to store all data of blockchain. Instead of that, nodes and the whole Ethereum network are divided into many sub-networks. Nodes of a sub-network are only required to verify the transactions belong to this sub-network and then produce blocks for them. Although nodes of a sub-network only store data of their own instead of the whole network, nodes of different sub-networks can exchange data without any restriction. In another word, a node can visit any node of different sub-networks for data it does not keep when in need.
Despite these solutions which scale Layer-1 network directly, Layer-2 provides a completely different scaling way. Layer-2 blockchain works on the native layer, normally with some smart contracts deployed on it to execute transactions transferred from Layer-1 automatically. In another word, the processing burden is transferred from Layer-1 to Layer-2, and only the final results of transactions need to be reported back to Layer-1. Thus, Layer-2 is responsible for processing and computation while Layer-1 is mainly responsible for ensuring the results of Layer-2 and maintaining the safety and stability of network. The load of Layer-1 is taken off by Layer-2 to a large extent. Through this, network congestion can be reduced significantly and network will become more scalable.
There are a lot of Layer-2 solutions available now, including Side Chain, State Channels and so on. Plasma is an early-stage Side Chain solution. OP is actually an improvement edition of Plasma which overcomes some born drawbacks of Plasma.
The nature of Plasma is the clone of Ethereum Layer 1 blockchain. Combining the cloned blockchain with Ethereum blockchain is so called Plasma. Smart contracts can be deployed on Plasma. The execution results of Plasma will be reported back to Ethereum mainnet finally. Assets of users can be also stored on Plasma addresses and transferred back to Ethereum freely but taking around 7 days. Plasma has preferable fraud-proof mechanism. However, a dreadful drawback of Plasma is that once Plasma collapsed, all details of transactions on it are unrecoverable as it only reports results of transactions back to Ethereum mainnet without any detail.
Rollup overcomes some deficiencies of Plasma effectively. Some rollup solutions can compress the data of transactions by zero knowledge proof way and send them back to the Layer-1. Verification on the details and final results of these transactions can be found on Layer-1 easily, in case of the data missing caused by side chain collapse. Now, the two main branches of rollup Layer-2 scaling solutions are ZK-Rollup and OP. Certainly, OP is not a solution utilizing zero knowledge proof technology.
OP Project Brief
The forerunner of OP is indeed Plasma. Plasma Group was initially a research group formed by three Ethereum core developers. Plasma Group mainly focused on developing Plasma scaling solution for Ethereum at the beginning. As it has been mentioned above, the more deeper their research, the more they felt that drawbacks of Plasma are difficult to overcome. Thus, they decided to succeed to the main technology framework of Plasma and developed a new program called OP to overcome the drawbacks of Plasma. We also mentioned ZK-Rollup solution above. The reason why Plasma Group abandoned it is that ZK-Rollup is difficult to be compatible with EVM.
Certainly, research of Plasma Group was initially a internal research of Ethereum Foundation and funded by it. As this research showed its potential on Ethereum Layer 2 scaling more and more, a lot of investors wished to invest on it. Finally, this research program decided to accept investment outside and began its commercial operation.
● January 2020, 3.5 million dollars seed round investment from Paradigm and IDEO;
● February2021, A round, 25 million dollars investment leaded by A16Z;
● March 2022, 150 million dollars B round investment leaded by A16Z and Paradigm under a valuation of 1.65 billion dollars;
● June 1st, 2022, the governance token of Optimism called OP was listed on some top exchanges like Binance and OKEX.
Optimism succeeds to the fraud proof mechanism of Plasma. However, the block production process of it is different from Ethereum. On Ethereum, there is a waiting area called Mempool for transactions before adding them to a block. Transactions need to be stored in Mempool before to be confirmed and picked up by miners. The confirmation priority of transactions in Mempool depends on their gas prices. Normally, transactions with lower gas prices spend more time in Mempool. Mempool is usually taken as the source of congestion on Ethereum. When transactions on Ethereum are very active, it is reasonable there are a number of transactions in Mempool waiting for adding to a new block. Under such a circumstance, the competitive bidding in Mempool can be very intense, which drives the gas fees of Ethereum higher and higher. Optimism canceled the Mempool and waiting mechanism. Transactions propagated on Optimism need not to wait for being picked up. Sequencers of Optimism must decide to accept a transaction or not instantly. Without competitive bidding inside a waiting area, transaction speed and fees of Optimism are incredibly superior to Ethereum.
We need to pay attention to the work of sequencers on OP. The role a sequencer plays on OP is to accept Layer-2 transactions and check for their validity. If sequencers find some transactions are suspicious, they can upload them to a specified anti-fraud smart contract on Ethereum Layer-1. This contract will verify these transactions further. Once transactions are proved to be fraudulent, all transactions related will be rolled back and sequencers found problem will be rewarded. On the contrary, if a sequencer submits a fraudulent state transition, a Layer-1 fraud proof contract can prove the fraud, undo the transition and slash the sequencer.
We conclude the main responsibilities of sequencers as below:
● Providing instant transaction confirmations and state updates.
● Producing L2 blocks.
● Transferring transactions to L1.
The Optimism Virtual Machine(OVM) does not depends on EVM while it needs to be managed by the rollup smart contract on Ethereum Layer-1. OVM is fully compatible with EVM and Ethereum. DApps from Ethereum Layer-1 can be deployed through OVM on OP Layer-2 directly. It means that developers need not to prepare a special OP Layer-2 edition for their dApps.
Economic Model and Token Airdrop
The governance token of Optimism, OP, is mainly used for governance protocol and community vote. The initial supply of OP is 4,294,967,296, and will inflate on a fixed annual rate of 2% from then forward. As for token allocation, 5.4% are allocated to governance fund, 5.4% are allocated to partner fund, 14% are reserved for future airdrops, 5% are for the Number 1 airdrop, 8.8% are unallocated, 17% are allocated to investors, 19% are allocated to core contributors, 20% are for Retroactive Public Goods Funding.
#1 airdrop at a glance:
Image Source: community.optimism.io
Optimism Users: This group selects for addresses that have used Optimism, including both early adopters and newer users, but narrows down to a group that has used Optimism multiple times. Address bridged to Optimism from L1 during the early phases of mainnet (prior to Jun 23, 2021), or used Optimism for more than 1 day (at least 24 hours between their first and last transaction) and made a transaction using an app (after to Jun 23, 2021).
Repeated Users: This tier selects for the most active Optimism users, who repeatedly come back to use applications in the Optimism ecosystem. Address is an ‘Optimism User’ and made at least 1 transaction with an Optimism application across four or more distinct weeks. This selects for the top 20% of ‘Optimism Users’.
DAO Voters: Address has either voted on or authored at least one proposal on-chain, or at least two on Snapshot (off-chain).
Multi-sig Signers: Multi-sig signers are entrusted with larger pools of capital or control over key protocol functions. They are often the present (and future) DAO leaders and builders.Address is a current signer on a Multi-Sig which has executed at least 10 transactions all-time (this cohort includes 95% of all multisig transactions).
Gitcoin Donors: Gitcoin donors have chosen to behave in positive-sum ways by funding public goods. These addresses may also align with Optimism’s goal to build sustainable funding source for public goods through retroactive funding.
Users Priced out of Ethereum: Active users of dApps on Ethereum are critical to ecosystem growth. Many of these addresses have started bridging to other chains due to high fees, and we want to help retain them in the Ethereum ecosystem while rewarding their curiosity and exploration. Optimism’s airdrop is also calibrated to reward loyalty to Ethereum, so users who have abandoned Ethereum entirely would not receive an airdrop.
The amount of OP tokens that an address receives is cumulative, meaning that the sum of OP tokens allocated for each matching criteria set is the amount that an address is eligible to claim. Notably, OP User refers to Optimism Users mentioned above, which is a prerequisite for overlap bonuses.
Image Source: community.optimism.io
List & Valuation
The open price of OP after listing was 1.59 dollars. It is said that the highest price of it on Binance once reached 3.88 dollars. The real time price of it is 0.7555 dollar when writing this article.
Someone pointed out that several days before the formal launch of OP, Optimism had begun to test their token protocol. Thereby, before the formal open of front-end, someone circumvented front-end and got airdrops before the market. Certainly, they sold their airdrops at a high price. For now, OP has been listed on Binance, Huobi Global, KuCoin, Gate.io, Coinbase, OKX and some other exchanges，also Uniswap.
An article on Messari before once did a valuation for OP. The gross profit of OP from the beginning of 2022 to April 25th, 2022 is 1.6M dollars with a gross profit rate of 21%. Meanwhile, daily transactions of OP this period are 40000. This article expects that the activity of OP transactions in the future will increase by 150%-400%, which means daily transactions range from 100,000 to 200,000. This article also projects the revenue brought by every transaction of OP will be between 0.9 and 1.2 dollars, a target profiting rate of 10%. The author finally concluded that expected price for OP is $2 with a fully diluted valuation of 9 billion dollars under an assumption of 148 Price-to-Sales multiplier.
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