What is Optimism? Ethereum’s layer-2 scaling solution explained

Understanding Optimism

Optimism is an Ethereum-compatible layer-2 project that hopes to solve Ethereum’s scalability issues while functioning similarly to the Ethereum blockchain.

Optimism is an Ethereum layer-2 scalability solution led by The Optimism Collective — an organization of dedicated communities aiming to build their vision of an equitable internet. The collective covers all of Optimism’s branches, such as OP Labs, OP Chains and the Optimism Foundation. 

The project is designed to work similarly to Ethereum, providing users with a variety of decentralized applications (DApps) like decentralized exchanges and other decentralized finance (DeFi) applications. 

Optimism is compatible with the Ethereum Virtual Machine (EVM). This EVM equivalence ensures that Ethereum developers can easily transition when building DApps within the network. The network’s standout function, however, is optimistic rollups.

What are optimistic rollups?

Optimistic rollup technology is one of many scalability solutions presented by Ethereum developers. They function similarly to zero-knowledge rollups but differ in a few key ways.

By existing on top of Ethereum as a layer-2 solution, Optimism processes transactions off of the mainnet. Processing data off of the Ethereum mainnet reduces congestion, lowers transaction fees and provides a gas fee reduction. However, a layer-2 solution needs some method of cross-layer communication with its parent chain. This is where optimistic rollups come in. 

Optimistic rollups are used by many Ethereum scalability solutions today and are Optimism’s method of transferring transactions from Ethereum to its layer-2 solution. An optimistic rollup involves a user depositing funds into smart contracts compatible with the layer-2 solution. A “sequencer,” which is a node that acts similarly to a validator on Ethereum, processes these transactions and rolls them up into a single block. Eventually, the sequencer sends that block to the layer-1 solution as a single transaction, also known as a state commitment.

Optimistic rollups are considered optimistic, as all transactions within the rollup are automatically assumed to be valid. This lack of validation is part of what makes the transaction throughput — the amount of transactions processed per second — so fast. Validation is one of the key contributors to long transaction times on other networks.

However, users can challenge a state commitment anytime via a “fault proof” process (formerly known as “fraud-proof”). If a challenge succeeds, the state commitment is removed from the chain and replaced by another one. Users currently have seven days to challenge a state commitment before it is considered final.  

While optimistic rollups are seen in other scalability solutions, these rollups are only one part of Optimism’s vast software set known as the OP Stack.

What is the OP Stack?

A project is only as good as its software stack. Optimism is no different, and the team has lofty development goals.

The OP Stack is an open-source, evolving set of software that serves as Optimism’s foundation. It includes multiple layers, such as the governance, settlement and derivation layers, all focused on transaction processing and network development. Ethereum serves as its consensus and transaction execution layers, providing Optimism with a secure foundation upon which to build.

Bedrock is the OP Stack’s current iteration, which offers a set of tools for developers to build their own layer-2 blockchain. Said blockchain can take advantage of optimistic rollups. However, Bedrock is just the start of Optimism’s community-driven development goals.    

The Optimism organization plans to evolve Bedrock into a superchain. Optimism’s vision for a superchain involves a foundation for developers to build their own chains. From there, every blockchain harnessing the superchain’s power can all receive the same upgrades, bridge between one another and participate in the same governance — a form of layer-2 interoperability.

Theoretically, developers could build a blockchain for whatever purpose they desire on top of Optimism’s OP stack. That chain could harness the security of Ethereum — the network Optimism’s superchain is built on top of — while developing its intended solution. By building this unified network of blockchains, the Optimism team hopes to solve the scalability issues plaguing many blockchain projects today. 

As of March 2024, the superchain is more of a concept than a reality. But Optimism’s developers are bullish about the project’s future. Of course, developments cannot occur without a team of dedicated users to push them forward. This is where Optimism’s governance comes into play. 

How does governance in Optimism work?

Governance is one of the most important parts of any blockchain ecosystem, ensuring developments are properly considered and implemented.

The Optimism Collective is governed by two groups: the Citizens’ House and the Token House.

The Citizens’ House

The Citizens’ House is Optimism’s approach to funding the various projects on its network. It comprises “citizens” who vote on distributing funding through the project’s retroactive public goods funding (RetroPGF). Citizens receive non-transferable nonfungible tokens (NFTs) to mark their position. These identifiers are also known as soulbound tokens and are permanently bound to a citizen’s wallet. Soulbound tokens can be verified by the public user base and provide a holistic view of citizens’ network history.

The RetroPGF receives funds through user transactions within the OP mainnet. Whenever a sequencer processes transactions, part of the sequencer’s rewards are redistributed into the PGF. The Citizens’ House then votes on which OP projects receive that funding. 

The Token House

The Token House is Optimism’s main governance method. Members of the Token House are in charge of submitting and voting on proposals to improve the network. Token House representatives are expected to engage in community meetings, provide regular project feedback and participate in reflection periods between voting sessions. Participation requires a large time commitment, and representatives who find themselves without enough time to participate can choose to delegate their responsibilities.

Delegates are expected to follow Optimism network developments as closely as Token House representatives. They must also participate in forum discussions and vote on governance proposals. Delegates will be rewarded for their efforts in OP tokens.

What is the OP token?

An OP token is the primary way for users to participate in the Optimism network. 

The OP token is the network’s primary governance token and the main way to interact with the Optimism ecosystem. OP tokens abide by Ethereum’s ERC-20 token standard and are typically acquired through trading or airdrops. Users can also earn OP tokens by participating in the network in one of the project’s governance houses or by processing transactions as a sequencer.

The project launched with a total supply of 4,294,967,296 OP tokens. Optimism aims to inflate the OP token at 2% per year. 

Optimism distributes its tokens in the following ways:

How OP tokens are distributed

As the OP token is a governance token, the asset has an uncapped supply. The token is also used to participate in DeFi on Optimism.

How does DeFi on Optimism work?

Decentralized finance avenues offer users various ways to use and profit from their token holdings. Similar to other layer-2 scaling solutions, Optimism offers a variety of decentralized finance applications. Users can play games, trade on decentralized exchanges, acquire NFTs and invest in other DeFi platforms by utilizing the OP token. 

However, users must bridge their existing assets onto the Optimism network to participate. Fortunately, they should experience fast withdrawals due to Optimism’s use of optimistic rollups.

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