For Cryptocurrency Investors, Optimism’s Token Is A Bust. Its Ethereum L2

When three ex-Ethereum
ETH
developers who built the Optimism
OP
blockchain in 2019 launched its own native token – OP – in May 2022, it was definitely no get rich quick scheme. If you could have shorted the OP token, you would have done well. OP fell 70% in its first 24 hours and is down 46% ever since. But OP is not for investors. This is for developers working on the Ethereum blockchain, creating decentralized apps for a Web3 future everyone is still waiting for and still being built. Word is that Optimism, the Layer 2 (L2) solution for Ethereum, is a hit with its target audience.

Moreover, crypto investors welcome it. They think it makes Ethereum better. Which was Optimism’s goal all along.

“By making Ethereum more approachable and user-friendly, L2 solutions are cutting transaction costs and speeding up processing times,” says From Zach Profeta, Senior Portfolio Manager for Sarson Funds in Indianapolis. “Since Layer 2 networks still use ETH (the Ethereum token) for gas fees, increased adoption means higher demand for ETH. For those reasons and more, we are active in both Ethereum and emerging Layer 2 solutions like Base,” he says, naming Coinbase’s own Layer 2 solution launched this year. Other L2s include Arbitrum
ARB
and Starkware (not tradeable).

What’s an L2: Why Should Investors Care?

First, a brief explainer for those with Coinbase accounts who just invest in cryptocurrency but aren’t building d’apps, or even know what a d’app is. (It stands for decentralized applications.)

L2 is needed to make Ethereum faster, and that keeps investors in ETH rather than selling for alternative blockchains like Hong Kong based Cardano
ADA
. The better L2s get, the more attractive Ethereum becomes. Better yet, Web3’s future looks more attractive.

Optimism was built by Ethereum developers — Jinglan Wang, Karl Floersch, and Kevin Ho. It is a “roll-up” scalable solution for Ethereum, which is a Layer 1 blockchain.

In short, Layer 1 blockchains are hard to build out – so they are slower, expandable universes – while Layer 2 blockchains are faster and more expandable and sit on top of the main chain, in this case Ethereum. There are two types of roll-ups. Optimism is one. Zero-knowledge rollups like Stark are the other ones.

These L2 chains store transaction data on the mainchain but move transaction activity to a sidechain. L2 chains take transactions out of the main network (“mainnet”) and process them off-chain, convert them into one single piece of data, and submit them back to the Ethereum mainnet. This makes them faster, and cheaper.

“We have been using Optimism to build since it is hard to make derivatives-based financial products which require high throughput on Ethereum. We want faster transactions,” says Gautham Santhosh, Co-founder of Dubai-based Polynomial Protocol, a decentralized crypto-derivatives trading exchange using the Synthetix protocol on Optimism.

Santhosh says Ethereum needs at least 13 seconds for transactions to settle. “But using Optimism allows us to do it faster for our products and provide cheaper transactions with the same security of Ethereum,” Santhosh says.

Optimism’s open mainnet launched in December 2021. It is built on top of Ethereum.

Since then, Optimism has deployed over 7,000 contracts, on-boarded well over 300 thousand unique addresses, secured nearly $1 billion in value and facilitated nearly $20 billion in transactions, with around $24.5 million in revenue, the company said.

Aziz Kenjaev, former head of partnerships for the GammaX cryptocurrency exchange in Dubai (he left shortly after interview), said that the challenge for crypto exchanges is to offer a fast and cheap trading environment to users.

“GammaX’s business model and design was to go zero fee. For us, Arbitrum had a huge edge. Their transaction costs are lower than Optimism’s. However, the Optimist’s transaction fraud proof is faster than Arbitrum’s. Both are optimistic rollups. Both of here to stay, and help d’App developers. The future of blockchain is fast execution with the lowest to imperceptible fees.”

Optimism is Growing

Optimism stemmed from complaints about Ethereum’s…