Optimism is a layer 2 blockchain that helps Ethereum scale by processing transactions on their blockchain and posting them to Ethereum in batches. The team behind Optimism is solid, with the former Plasma Group having strong ties in the Ethereum community. Their approach, called Optimistic Rollup, assumes all transactions are valid, making it 10 to 100 times faster than Ethereum, but they have a challenge period to protect against false transactions. Optimism has its own governance token, OP, but the tokenomics have some red flags, with a high inflation rate and revenue going to an ecosystem fund instead of benefiting token holders. The innovative two-tier governance system, the Optimism Collective, has garnered praise from Vitalik Buterin.
Layer 2 Projects: Ethereum Scaling
Layer 2 scaling is a term that refers to a group of blockchain technologies that help address the scalability of Ethereum, the second-largest cryptocurrency by market capitalization. Layer 2 projects are seen as the future of Ethereum scaling, and optimism is one of the biggest among them that actually has a token. In this article, we will analyze different categories to determine if buying optimism’s token is the right choice.
Overview of Optimism
Optimism is a layer 2 blockchain that helps Ethereum scale. It achieves this by processing a bunch of transactions in batches and posting them to Ethereum. This approach leads to fast speeds and low fees without sacrificing on security.
A strong team is paramount to the success of any project. Fortunately for optimism, it has a solid team in place. The team was formerly known as the Plasma Group, which was tasked with fixing Ethereum’s scaling issues back in 2018. While their approach was ultimately deemed incorrect, they built deep ties within the Ethereum community. Reviewing their credentials, one can see that they have the unanimous support of a16z and Synthetics.
Optimism is using optimistic rollups, which is one of several different approaches to blockchain scaling. They are known for the super-fast speeds achieved by executing a bunch of transactions on their own blockchain, rolling them up into a single transaction and sending them to Ethereum. Compared to other rollups, optimistic rollups are 10-100 times faster than Ethereum. However, they take seven days to complete transactions, which is not ideal to users.
Optimism’s governance token, OP, has an initial supply of 4.3 billion tokens with a steady two percent annual inflation rate. It has an unlock schedule projected to hit 2 billion tokens in circulation in the next year. One worry with the token is its inability to capture value. Revenue generated by the sequence goes towards the ecosystem fund instead of benefiting token holders. The governance aspect of the token is innovative, but the lack of demand to counteract sell pressures is a concern, leading to a rating of 4 out of 10.
Optimism’s collective governance is a two-tier system that balances short and long-term incentives. The token house and the citizen’s house comprise the two chambers of government. Token holders get to participate in the optimism collective, which is unique. The citizen’s house uses soul-bound NFTs to designate membership that is tied to the owner’s address forever.
In conclusion, optimism is a promising layer 2 blockchain with an impressive team, innovative governance structure, and dependable technology. However, the current tokenomics model raises concerns regarding the token’s ability to capture value. Nevertheless, suppose the project continues on the path to success and finds solutions to these problems, then buying the token may turn out to be a lucrative investment.