What is Optimism? How Does it work? A Comprehensive Overview

What Is Optimism?

Optimism is a layer-2 scaling solution deployed on top of the Ethereum network. It is powered by a technology called Optimistic rollups, which bundles large amounts of transaction data into digestible batches, making it much cheaper to use than operating directly on Ethereum.

Ethereum, the largest smart contracts blockchain, has been facing scalability issues as more users join and use the network. This has led to increased costs and slower transaction times. In response to this challenge, several Ethereum alternatives have emerged, including Solana or Avalanche, which are entirely separate blockchains or layer 1s, as well as Arbitrum or Optimism, which are layer 2 chains built on top of Ethereum.

Optimism has become increasingly popular, along with other layer 2s such as Arbitrum and Polygon, among users who are fed up with slow and expensive transactions on Ethereum, but still want to take advantage of its security and capabilities.

Key Takeaways

  • Optimism is a layer 2 scaling solution for Ethereum that uses Optimistic rollups to bundle transaction data into digestible batches.
  • Optimism is much cheaper to use than Ethereum, and transactions are executed considerably faster.
  • Optimism is governed by its token, OP, which was airdropped to early users in 2022 and 2023.

What Is The History of Optimism?

The story of Optimism traces back to 2019 when Plasma Group was founded1. This non-profit organization dedicated itself to exploring Ethereum scalability solutions. In June 2019, Plasma Group integrated concepts from Vitalik Buterin’s rollup design into its own, laying the foundation for the Optimistic Rollup architecture.

In 2022, Optimism began a new chapter, prioritizing community ownership and governance. In April, the project introduced the Optimism Collective2, a two-tier governance system. This system comprises the Token House, which is responsible for technical decisions, and the Citizens’ House, which oversees public goods funding.

To empower community participation, Optimism launched its native token, OP, in May 2022. A total of 5% of the token supply, equivalent to 214 million OP tokens, was distributed through an airdrop to eligible users3.

The second Optimism (OP) airdrop took place on February 27, 20234. It distributed 11,742,277.10 OP tokens to 307,965 unique addresses. This airdrop was the second in a series of airdrops that Optimism has conducted to reward its community and distribute OP tokens to users who have participated in the network’s growth.

The third Optimism (OP) airdrop took place on September 18, 20235. It distributed 19,411,313 OP tokens to 31,870 unique addresses. This airdrop was the third in a series of airdrops that Optimism has conducted to reward its community and distribute OP tokens to users who have participated in the network’s growth.

Today, Optimism is widely recognized as a leading layer-2 solution, powering a growing ecosystem of DeFi applications and dApps. Its focus on scalability, security, and community engagement has fueled its adoption and positioned it as a key player in the future of Ethereum.

How Does Optimism Work?

Optimism is a technology that uses Optimistic rollups. These rollups bundle data about hundreds of transactions into a single transaction on the Ethereum mainnet. This bundling of transactions results in a meaningful reduction in the blockchain transaction fee required to pay, as only one transaction fee is distributed across everyone involved.

Optimistic rollups assume that transactions are valid unless proven false, which means that they are considered innocent until proven guilty. In case of a potentially invalid transaction, a fraud-proof can be submitted within a time window6. The transaction’s computations are then run with reference to available state data, and if proven to be fraudulent, Optimism reimburses the gas needed to run the computation.

As of this writing, Optimism is one of the second-largest Ethereum layer two solutions, with a total of $830 million locked into its smart contracts, according to Defi Llama7.

Optimism has 35 protocols with at least $1,000 locked into their smart contracts. Synthetix is the largest protocol on Optimism, with a total value locked (TVL) of $287 million. Veldrome, a decentralized exchange (DEX), is the second most popular protocol on the chain.

Optimism’s layer 2 solution has gained traction due to its ability to scale Ethereum and reduce gas fees. It allows users to interact with smart contracts and decentralized applications (dApps) without worrying about high transaction fees.

Optimism's total value locked has grown at a rapid rate since its launch.
Optimism’s total value locked has grown at a rapid rate since its launch. Source: DeFiLama

How Can You Start Using Optimism (OP)?

Optimism supports a bunch of decentralized finance (DeFi) wallets, including MetaMask, the most popular choice. Just like Ethereum mainnet, Optimism requires ether (ETH) to cover gas fees. So, to begin using Optimism, users will need to send ETH to their MetaMask. To send funds from another chain, users can use any of the bridges that support Optimism.

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Users can also use a centralized cryptocurrency exchange to fund their Optimism address with ETH. But before attempting to send funds to a layer 2 from a centralized exchange, users should always make sure that it can support withdrawal to that chain. If they send funds to an address that their exchange doesn’t support, their funds may be irrecoverably lost.

In summary, to use Optimism, users must have an Ethereum mainnet address, configure their wallet for Optimism, send ETH to their MetaMask or another compatible wallet, and ensure that their exchange supports withdrawal to Optimism before attempting to send funds to layer 2.

What utility does the Optimism (OP) Token Provide?

OP is an Ethereum-based ERC-20 token8 that offers multiple use cases within the Optimism ecosystem.

The primary use case for the Optimism (OP) token is governance. OP holders can participate in decision-making processes related to the Optimism network, including voting on protocol upgrades, funding public goods, and influencing the overall direction of the project. OP holders can vote directly or delegate their voting power to other token holders.

Here are some specific examples of how OP can be used for governance:

  • Voting on whether to implement new features or upgrades to the Optimism network
  • Deciding how to allocate funds from the Optimism Collective Treasury, which is a pool of money used to support the network and its community
  • Influencing the development roadmap of the Optimism network

In addition to its governance role, OP has the potential to be used for other purposes in the future, such as:

  • Paying transaction fees on the Optimism network (there are currently plans to implement this feature)
  • Staking to earn rewards and support the security of the network
  • Being used as a payment method for goods and services within the Optimism ecosystem

The specific use cases for OP will likely evolve over time as the Optimism network matures and the project’s ecosystem expands.

What are the tokenomics of Optimism (OP)?

The tokenomics of Optimism (OP) are designed to incentivize community participation, governance, and ecosystem growth. The token allocation is as follows:

  • Retroactive Public Goods Funding (PGF): 20% of the total OP supply is dedicated to funding public goods projects that benefit the Optimism ecosystem. This includes projects that improve the network’s infrastructure, security, and user experience.
  • Ecosystem Fund: 25% of the total OP supply is allocated to the Ecosystem Fund, which supports a variety of initiatives that contribute to the development and growth of the Optimism ecosystem. This includes funding grants for developers, marketing campaigns, and community events.
  • Airdrops: 19% of the total OP supply is distributed through airdrops to eligible users. This helps to incentivize participation in the Optimism network and its governance.
  • Investors: 17% of the total OP supply is distributed to investors who participated in the initial funding rounds for Optimism. This rewards those who have contributed to the project’s development.
  • Core Contributors: 19% of the total OP supply is allocated to core contributors, such as developers, researchers, and community managers. This recognizes their contributions to the project’s success.
OP tokenomics are designed to encourage community participation and stable growth.
OP tokenomics are designed to encourage community participation and stable growth. Source: OptimismDocs

How has OP traded in 2023, and what are the OP price predictions?

Following the airdrop in mid-2022, Optimism (OP) has experienced a fair amount of volatility, but overall, long-term holders have enjoyed healthy profits. According to TradingView, OP has rallied by over 125% year to date, with the price of a single OP trading at over $2 as of writing in December 2023. However, even following the recent surge, OP is trading well below its all-time high of $3.

Optimism price predictions are positive overall, but an upcoming token unlock is expected by some analysts to place considerable selling pressure on the token. Changelly expects OP to trade flat in 2024 and move back above its all-time high in 20259. Coincodex is more bullish than Changelly and forecasts OP to reach $3 in 202410.

When it comes to crypto price predictions, always do your own research, as the market is extremely volatile, and no one has a crystal ball.

Optimism has enjoyed a strong rally in 2023, which has seen the OP token surge by well over 100%.
Optimism has enjoyed a strong rally in 2023, which has seen the OP token surge by well over 100%. Source: TradingView

When is the Next Optimism (OP) Airdrop?

At this time, there are no publicly announced plans for any additional Optimism airdrops in 2023 or 2024. However, there may be smaller airdrops or token distribution events associated with specific projects or initiatives on the Optimism network. It’s always a good idea to stay informed about upcoming events and announcements by following Optimism’s official channels and engaging with the community.

Final Thoughts on Optimism (OP)

Optimism (OP) took a novel approach to solving Ethereum’s scaling hurdle, and it appears to have been very successful. The airdrop campaigns generate massive hype, and the ERC-20 token’s value has steadily increased since its launch. The project has become a market leader in terms of total value locked, and it appears to be here to stay.

Frequently Asked Questions

What is the Optimism token (OP), and what is it used for?

The Optimism token (OP) is the native token of the Optimism blockchain. It has several uses, including:

Governance: OP holders can vote on proposals that affect the direction of the Optimism network.

Payment of transaction fees: In the future, OP tokens may be used to pay transaction fees on the Optimism network.

Staking: OP tokens may be staked to earn rewards and support the security of the network.

Payment method: OP tokens may be used as a payment method for goods and services within the Optimism ecosystem.

What is Optimism, and how does it work?

Optimism is a layer-2 scaling solution for the Ethereum blockchain. It uses Optimistic Rollups, a technology that bundles transactions together and submits them to the Ethereum mainchain for validation. This allows Optimism to process transactions much faster and cheaper than on the main chain.

Where Can You Buy Optimism (OP?)

OP is a widely traded crypto token that can be purchased on most leading exchanges, including Coinbase, Binance, and Kraken.

Peter Barker

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Peter Barker

Peter is an experienced crypto content writer and a DeFi enthusiast with more than 3+ years of experience in the space. Previously a journalist and news editor at a leading European news sourcing agency.

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