What is Optimism?

Optimism is a layer 2 Ethereum solution that enhances scalability by processing transactions on its layer and validating them on the mainnet. With $313 million in smart contracts, it aims to improve user experience for decentralized applications. Optimism’s native governance token, OP, shapes the network’s future, with holders exercising voting rights to influence software upgrades and public-goods funding. OP’s governance is managed by the Optimism Collective, with the Token House overseeing key governance proposals and the Citizens’ House focusing on public-goods funding.

In this AAG Academy article, we will delve deeper into Optimism and its native token, OP. We will explore how Optimism functions, uncover its pros and cons, and address several frequently asked questions, offering a comprehensive understanding of this transformative layer 2 solution and its governance token.

Optimism operates as a layer 2 chain, functioning atop the Ethereum mainnet (layer 1). Transactions occur on the Optimism layer, while transaction data is relayed to the mainnet for validation. This analogy is akin to navigating a less crowded side street while still benefiting from the security and reliability of a well-established highway.

Within the Ethereum layer 2 landscape, Optimism is the second-largest, with $313 million locked into its smart contracts, as reported by Defi Llama. As an Ethereum Virtual Machine (EVM)-equivalent Layer 2 solution, Optimism provides scalability to Ethereum, countering the network’s potential slowness and expense. With its aim to enhance the accessibility of decentralized applications (dApps) by offering cost-efficient transactions and a smoother user experience, Optimism emerges as a valuable addition to the Ethereum ecosystem.

What is OP

OP is the native governance token of the Optimism network, holding a pivotal role in shaping the network’s future. OP token holders exercise their voting rights to influence important decisions regarding software upgrades, public-goods funding, and other aspects of Optimism’s ecosystem. Operating on the Ethereum blockchain under the ERC-20 token standard, OP’s governance mechanisms are managed by the Optimism Collective, a decentralized autonomous organization (DAO) comprised of the Token House and the Citizens’ House.

The Token House focuses on pivotal governance proposals like software upgrades and protocol enhancements. OP token holders actively participate in these decisions through voting. Meanwhile, the Citizens’ House, currently in development, will specialize in public-goods funding decisions, enabling token holders to contribute to projects that benefit the broader Optimism community, emphasizing the network’s commitment to inclusive and community-driven development.

How does Optimism (OP) work

Optimism Blockchain relies on a core component, the Sequencer, responsible for vital network coordination tasks, including validating transactions, updating the network’s state, processing new blocks, and submitting transactions to the Ethereum mainnet. While Optimism Labs currently operates the sole Sequencer, the long-term vision involves transitioning to a more decentralized model where multiple participants can serve as block producers. This shift will introduce a poly-sequencer model when the network is ready for it.

Optimism’s Fault Proof mechanism allows transactions to be rolled back to the Ethereum mainnet without upfront proof, with the assumption of validity. This can be challenged during a seven-day Challenge Window, where objections to state commitment validity are examined. The protocol encourages security testing with a $2 million bounty and aims to decentralize its upgrade process for increased security.

Pros and Cons of Optimism

Investing, trading or engaging with the Optimism blockchain and OP proposes a few pros and cons:

Pros:

Ethereum Scalability: Optimism focuses on enhancing Ethereum’s scalability through the optimistic rollup model, prioritizing a better user and developer experience within the Ethereum ecosystem.

Compatibility With EVM: Optimism seamlessly integrates with the Ethereum Virtual Machine (EVM), allowing developers to use Ethereum languages and popular frameworks.

Speed Of Confirmation: Transfer speeds vary; Ethereum to Optimism deposits take about 15 minutes, while asset transfers from Optimism to Ethereum can take up to seven days.

Reduced Gas Fees: Optimism significantly reduces gas fees by abstracting and optimizing L1 and L2 fees, saving users over $3 billion in gas costs.

Ecosystem and Community Support: The Optimism Collective supports public goods, rewarding them retrospectively, and is exploring the monetization of public goods.

Interoperability With The Superchain: Optimism is working on the Superchain, a groundbreaking architecture that enables cross-chain operability, although it’s currently in progress.

Cons:

Optimistic Latency: Roll ups operate with ‘trustless liveness,’ allowing anyone to execute and post transactions on the main blockchain. However, they face high latency in transaction finality due to an extended dispute period.

Long and Costly Withdrawals: Notably, withdrawals via the main bridge, once initiated, cannot be canceled, incurring substantial costs, potentially exceeding $100, due to the extensive security measures, which may hinder adoption and composability.

Potential Incentive Misalignment: The network relies on verifiers challenging fraudulent proposals, but reduced incentives may cause network issues. However, honest verifiers and Optimism applications’ protocols may prevent this.

References

What is Optimism

What Is OP? A Guide to Optimism’s Native Token‍

Hacken – Optimism Blockchain