Golden Encyclopedia | What is Optimism? Detailed explanation of Ethereum L2 expansion plan

Author: Max Moeller, CoinTelegraph; Compiler: Tao Zhu, Golden Finance

1. Understand Optimism

Optimism is an Ethereum-compatible Layer 2 project that hopes to solve Ethereum's scalability problems 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 dedicated to building a vision of a fair Internet. The organization encompasses all branches of Optimism, 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), such as decentralized exchanges and other decentralized financial (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 feature, however, is Optimism Rollup.

What is optimistic rollup?

Optimism Rollup technology is one of many scalability solutions proposed by Ethereum developers. They function similarly to zero-knowledge Rollup, but differ in some key ways.

By existing on top of Ethereum as a Layer 2 solution, Optimism processes transactions outside of the mainnet. Processing data from the Ethereum mainnet can reduce congestion, lower transaction fees, and reduce gas fees. However, Layer 2 solutions require some way to communicate across layers with their parent chain. This is where Optimism Rollup comes in.

Many Ethereum scalability solutions today use Optimistic Rollup, which is Optimism's way of moving transactions from Ethereum to its Layer 2 solution. Optimism Rollup involves users depositing funds into smart contracts that are compatible with Layer 2 solutions. A “sequencer,” a node similar to a validator on Ethereum, processes these transactions and rolls them up into a single block. Ultimately, the sequencer sends that block as a single transaction to the Layer 1 solution, also known as a state commitment.

Optimism Rollup is considered optimistic because all transactions in a Rollup are automatically assumed to be valid. The lack of validation is part of the reason why transaction throughput (transactions processed per second) is so fast. Validation is one of the key factors in the long transaction times on other networks.

However, users can challenge the commitment at any time through a process called “error-proofing” (formerly known as “fraud-proofing”). If the challenge is successful, the commitment is removed from the chain and replaced by another one. Currently, users have seven days to challenge a commitment before it can be considered final.

While Optimistic Rollups also appear in other scalability solutions, these Rollups are just one part of Optimism’s vast software collection, called the OP Stack.

3. What is OP Stack?

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

OP Stack is an open-source, evolving set of software that is the foundation of Optimism. It includes multiple layers, such as governance, settlement, and derivatives, all of which focus on transaction processing and network development. Ethereum, as its consensus layer and transaction execution layer, provides a secure foundation for Optimism.

Bedrock is the current iteration of OP Stack, which provides developers with a set of tools to build their own Layer 2 blockchains. Said blockchains can utilize Optimistic Rollup. However, Bedrock is just the beginning of Optimism's community-driven development goals.

The Optimism organization plans to develop Bedrock into a superchain. Optimism's vision for superchains involves laying the foundation for developers to build their own chains. From there, every blockchain that leverages the power of the superchain can receive the same upgrades, build bridges between each other and participate in the same governance - a form of Layer 2 interoperability.

In theory, developers can build a blockchain for any purpose they want on top of Optimism's OP stack. The chain can leverage the security of Ethereum (the network on which Optimism's superchain is built) while developing its intended solution. By building this unified blockchain network, the Optimism team hopes to solve the scalability problem that plagues many blockchain projects today.

As of March 2024, the superchain is more of a concept than a reality. But Optimism's developers are optimistic about the future of the project. Of course, development can't happen without a dedicated team of users to drive it forward. This is where Optimism governance comes into play.

Fourth, How does Optimism governance work?

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

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

Citizens’ House

Citizens’ House is Optimism’s method of funding various projects on its network. It is comprised of “citizens” who vote to allocate funds through the project’s Retroactive Public Good Fund (RetroPGF). Citizens receive non-transferable non-fungible tokens (NFTs) to mark their positions. These identifiers are also called Soulbound tokens and are permanently bound to the citizen’s wallet. Soulbound tokens can be verified by the public user base and provide a holistic view of the history of the Citizens’ network.

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

Token House

Token House is Optimism’s primary method of governance. Members of the Token House are responsible for submitting proposals to improve the network and voting on them. Token House representatives are expected to attend community meetings, provide regular feedback on projects, and participate in reflection periods between voting meetings. Participation requires a significant time commitment, and representatives who do not have enough time to participate can choose to delegate responsibilities.

Delegates will follow the development of the Optimism network 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 with OP tokens.

What are OP tokens?

OP tokens are the main way for users to participate in the Optimism network.

OP tokens are the main governance token of the network and the main way to interact with the Optimism ecosystem. OP tokens adhere to Ethereum's ERC-20 token standard and are typically obtained through trading or airdrops. Users can also earn OP tokens by participating in the network of one of the project's governance bodies or processing transactions as a sorter.

The total supply of OP tokens at the launch of the project is 4,294,967,296. Optimism aims to have the OP token appreciate by 2% per year.

Optimism distributes its tokens in the following ways:

Since the OP token is a governance token, the supply of this asset is not limited. The token is also used to participate in DeFi on Optimism.

How does Optimism DeFi work?

The decentralized finance avenue provides users with a variety of 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 use OP tokens to play games, trade on decentralized exchanges, acquire NFTs, and invest in other DeFi platforms.

However, users must bridge their existing assets to the Optimism network to participate. Fortunately, since Optimism uses Optimism Rollup, they should experience fast withdrawals.