Optimism Ecosystem: From an L2 solution to an ecosystem

The Layer-2 solution race is hotter than ever since multiple solutions have been put forward to solve the recurrent limits of the Ethereum blockchain. Optimism is one of the race participants. It was incubated by Paradigm and boosted by a16z.

This article will introduce the overview of Optimism and dig deeper into the ecosystem to find potential opportunities. So let’s explore the potential of Optimism!

Optimism Overview

What is Optimism?

Optimism is the Layer 2 Rollup scaling solution on top of the Ethereum blockchain to enable faster transactions with lower gas fees. In simple terms, it allows most transactions and tasks to be processed off-chain in an L2 protocol and lets the Ethereum Network verify them on-chain.

• Ethereum Network faces some limitations as the gas fee and transaction time are too high for users’ tolerance.
• Optimistic Rollups (ORs) run independently from the Ethereum Network. The L2 scaling solution will improve the performance and increase the throughput with lower latency than Ethereum.
• Optimistic Virtual Machine (OVM) allows Ethereum-based Decentralized Applications (Dapps) to run on ORs without complex code conversion. This feature makes Optimism Rollups EVM-compatible.

Learn more: What is Optimism?

Optimism Highlights

• Higher performance: Lower transaction fees (50x-150x cheaper), lower latency, higher speed, high throughput, and more ERC20 token transfer speed.
• Composability: Optimism can communicate with the L1 blockchain in a blink of an eye.
• Scalability: With OVM, Dapps on Ethereum can migrate to Optimism with only a few modifications.
• Security: Optimism processes the transactions then sends them to Ethereum. It inherits the decentralized network of Ethereum’s nodes that make up a firm security guarantee.

Optimism Highlight Numbers 

(Updated: Jan 29th, 2022)

• Chain ID: 10.
• Main Currency: ETH.
• Ethereum Total Wallets (Jan 29th, 2022): 237,660.
• Avg Transactions/Day in last 30 days: 41,060.
• Avg Transaction Per Month: 1.2M.
• Average Gas Fee Savings On Optimism vs. Ethereum Network: 128x cheaper.
• On-Chain Value Of Optimism: $633,300,000.
• Stablecoin supply value (USDT + USDC + DAI): ~$77,800,000.

The data source is from Dune Analytics: https://dune.xyz/optimismpbc/Optimism-Overview

If you want to explore more detailed on-chain data of Optimism, we recommend checking out this: https://dune.xyz/optimismpbc/Optimism

Roadmap and Development Progress

• 2019: Optimism Testnet.
• 2020: EVM-compatible Testnet.
• 2021: Optimism Mainnet and EVM-compatible Mainnet.
• 2022: Next-Gen Fault Proof.
• 2023: Incentives, Decentralization, Sharded Rollup.

In short, Optimism is now running on mainnet, and developers can deploy their Dapps with the permission of Optimism. 2020-2021 is the development phase of Optimism, and 2021-2022 is the growth of the Optimism ecosystem. 2021 ended with more than 50 Dapps running on the L2 scaling solution.

Investors and Partners

Optimism raised $3.5M in a seed round led by Paradigm and IDEO CoLab Ventures to put forward an L2 scaling solution for the Ethereum blockchain in 2020. After one year, it closed a $25M Series A funding round led by a16z in Feb 2021. The later investment will accelerate the development of Optimism as Optimism went mainnet in 2021 and is now ready for Dapps to be deployed.

Paradigm and a16z are reportedly managing billions of dollars in crypto assets across the market. The first round was $3.5M, and the second was $25M, which is impressively multiplied. 

Optimism Ecosystem Overview

Being invested by two crypto giants, a16z and Paradigm, Optimism understandably opened for crypto projects funded by the two venture capitals. The total number of projects running on Optimism is 65+, which needs further incentives to boost the development of the ecosystem.

In the following parts, we will break down every fundamental lego of the Optimism ecosystem.

DEX

• Uniswap V3 is the leading DEX pioneer in optimizing capital and offering more returns for Liquidity Providers on Uniswap. The DEX allows users to migrate crypto assets from Ethereum to Optimism through the Optimism Gateway bridge. This is a shifting moment of Uniswap since Ethereum limits the DEX from scaling and expanding further.

The TVL of Uniswap on Optimism has been ranging around $40M and giving no explicit movement. Since Uniswap on Optimism is in the beta stage, so users are hesitating to move their assets to Optimism instead of a more stable version of Polygon. However, Uniswap is still a go-to DEX on Optimism.

• Rubicon leveraging the Optimism moats to build a DEX for ERC20 crypto assets.
• 1Inch is the second Dapp on Optimism that evolves to be a DeFi hub rather than a DEX. At the moment, only 1Inch Aggregator is running on Optimism, and other 1Inch products are not. Users can do swapping on 1Inch Aggregator, but the routing still goes to Uniswap on Optimism. For now, Uniswap is the most optimized DEX with the largest liquidity on Optimism.

• BitBTC facilitates the BTC exchanging for users on the Optimistic Ethereum network.
• Juggler is an Optimism-native decentralized protocol built for exchanging tokens among users. The DEX has to compete with other Optimism-migrating giants such as Uniswap and 1Inch. Therefore, it should build a moat to gain traction for the platform.

⇒ For every new ecosystem, DEX always plays as the first to be delivered in the DeFi category. Being adopted by Uniswap, Optimism can gain lots of liquidity (as mentioned, $40M TVL) from the largest DEX in crypto. The TVL of Uniswap is just a humble number, and there are other fragmented TVL across the Optimism ecosystem.

Besides Uniswap, other Optimism-native DEXs struggle with liquidity as the incentives are seemingly not getting enough interest. However, this might be the chance to bet on DEXs on Optimism since there will be incentive programs such as liquidity mining, staking, farming, etc, occurring soon, created by project builders.

Derivatives/Options

• Synthetix, a derivatives liquidity protocol, announced its plan to migrate to Optimism in mid-2021, which was a historic milestone for the platform. For now, the trading fee on Synthetix is oscillating between 0.3% and 1%, which is similar to other trading platforms like dYdX.

The total TVL of Optimism is stabilizing below $300M and Synthetix is now dominating it with over 40% of the total TVL. Synthetic is the lead player since it was one of the first Optimism comers and it is built to be a liquidity protocol connecting with protocols such as Kwenta.

• Kwenta, a derivatives trading protocol for synthetic and crypto assets, is liquidity-connected to Synthetix.
• Lyra, an options trading protocol built on Optimism, has dominating stats as follows: $200M notional volume, +8000 trades, 90+ unique daily traders. Those numbers outperform other options trading protocols on Optimistic Ethereum.
• Perpetual Protocol launched on Optimism in December 2021, offering better users’ experience with better liquidity from the largest DEX on Ethereum, Uniswap V3. The platform is performing over $2B trading volume with 6600+ trades on Optimism.
• Pika is a perpetual trading platform on the Optimistic Ethereum Network that offers up to 50x leverage for various crypto assets. The Pika mainnet was launched on Jan 25th, 2022, and the platform was audited but still in the beta version. Traders use USD as the margin token and pay ETH for the transaction fees. Furthermore, Pika supports Hop Exchange, Optimistic Gateway, and cBridge Celer Network as bridges to migrate assets.
• Thales is a binary options trading platform that allows users to buy and sell contracts. Total trading volume on Thales is over $750k with 1000+ trades. Furthermore, about 10 unique traders daily get incentivized rewards while interacting with the platform. You can explore more on-chain data of Thale.

⇒ Optimism is a go-to destination for derivatives trading platforms since the number of native and migrating projects is increasing. Two prominent new Optimism immigrants Synthetix and Perpetual Protocol bridged millions of dollars in crypto assets to Optimism and brought their user base. The trading volume of the two platforms is dominating the derivatives market on Optimism.

Optimism-native derivatives platforms are note-worthy as the Optimism ecosystem is growing and users are looking for primitive investment opportunities inside the ecosystem. As speculators, we should try out these derivatives products in the hope of a future retroactive token airdrop like dYdX or Perpetual Protocol. 

On Optimism, every derivatives project has picked out a development strategy with different resources. In the long term, it’s hard to predict who’s going to win the derivatives market on Optimistic Ethereum. Let’s see what incentives will occur to gain traction and expand the user base inside the Optimism ecosystem.

Infrastructure/Tools

• Alchemy is an infrastructure provider for Ethereum that supports most Ethereum-based Dapps. 
• Chainlink starts running Oracles on Optimism in September 2021, which is a good adopting signal of the L2 scaling solution. As Chainlink is the biggest oracle giant in crypto, Optimism can receive high-quality data feeds of various ERC20 crypto assets. 

• GetBlock is a blockchain node service provider that simplifies the node operation of multiple blockchain platforms via APIs, including Ethereum, BSC, and also Optimism.

• The Graph allows its users to build and summit open APIs of the L2 solution Optimism to make blockchain data in the shape of subgraphs available for the community. Apart from Optimism, The Graph also supports 15+ EVM-based solutions. 
• QuickNode supports 10+ blockchains, including Optimism to leverage blockchain-based Dapps with go-to APIs.
• Etherscan and Dune Analytics also integrated Optimism with their platform to deliver on-chain data and visualized graphs to crypto-curious users.

⇒ The infrastructure of Optimism can be considered complete as many major infrastructure service providers supported it. Projects/Startups on Optimism can be integrated into their products via built APIs, and users can interact to explore on-chain data of Optimism.

Bridge

Bridge is an indispensable lego part of every blockchain, especially Layer 2 blockchain as today is the era of interoperability and communication among chains. On Optimism, we can name many bridges that serve the token migration from Ethereum to Optimism and vice versa (some bridges support more chains such as Polygon, Artibitrum, xDAI,...).

Hop Exchange, Teleportr, Across, Celer Bridge, Connext, LayerSwap, Optimism Gateway, Poly Network, xPollinate.

⇒ Notably, over $100M in crypto assets (mostly USDT, USDC, and LUSD) was transferred via Optimism Gateway. This is only the stablecoin via an Optimism-focused bridge Optimism Gateway, not counting other bridges. With that number of stablecoin circulating inside the ecosystem, Optimism can expand DeFi activities leveraged by cheap and fast transactions. 

Therefore, we can presume that cash flow is gradually pouring into the Optimism ecosystem. It’s recommended that we follow the stablecoin inflow to Optimism to estimate the growth. However, the token migrating speed can take days to complete.

NFT

⇒ 2021 was an epic year for NFT collectors; billions of dollars of liquidity poured into this unique application of blockchain technology. Optimism welcomed NFT artists and NFT creators to join the ecosystem. We can name some worth-mentioning NFT projects: Optipunks, Optimistic Bunnies, Optimistic Loggies, Dope Wars, oe40, tofuNFT, Quixotic, Circular Art. 

The NFT landscape of Optimism just begins with only a few NFT projects and lacks the NFT marketplace lego part. However, creating NFTs is easy but creating value and utility for NFTs is a different story as most NFTs sank into oblivion when the NFT mania passes.

Supported Wallet

Optimism went mainnet in 2021 and immediately got supported by top wallets such as MetaMask, Coinbase Wallet, Trust Wallet, etc. The wallet lego is the frontier to connect crypto payment with the largest available user base. The user game will yield the biggest rewards for wallet projects that own the majority of users in the world.

Optimism Ecosystem Predictions

The Optimism ecosystem is growing fast in every aspect: The number of projects, TVL, stablecoin inflow, on-chain transactions,... 2021 was a booming year for L2 scaling solutions, especially L2 solutions for the Ethereum Network.

However, the L2 race is still tirelessly going on, and many new moats will be unfolded. Coin98 Insights will put forward some predictions that possibly indicate the missing parts and the future of Optimism.

• Optimism is now selectively adding new projects to the ecosystem and is fully open for developers to deploy their ideas. Other DeFi niches are missing in the ecosystem, such as lending/borrowing, fundraising platforms, etc. If Optimism entirely opens, the ecosystem will thrive, but more potential risks for its users will be.
• Integrate with major DeFi projects: Since Ethereum is limiting the development of unicorn Dapps, developers are considering a new land to migrate their ideas and user base. Optimism is going to acquire as many big protocols as possible as other L2 solutions are doing the same to attract the available huge liquidity and user base.
• Cash flow and narratives from big whales: Paradigm and a16z invested in Optimism in 2020 and 2021, respectively. The two reputable venture capitals can humbly drive the narratives of the market with their network effect. It’s expected to be more and more venture capitals with funds to engage in the Optimism ecosystem in DeFi and application layers instead of only Optimism - an L2 solution. 
• Release Optimism Token? Polygon released MATIC as its native token to pay transactions fee. For now, users on Optimism still pay transaction fees in ETH. Therefore, the opportunity to invest in the Optimism token is possibly the next incentive movement of the scaling solution to attract the cash flow into the ecosystem.
• Many strong rivals: Optimism is not the only L2 solution for Ethereum. Others are Arbitrum, Metis, Boba Network,... which are releasing incentive programs to boost the chain TVL and acquire new users to the ecosystems. As a result, we will not see Optimism behind the L2 race, let alone standing outside the game.

Conclusion

To conclude, that is all you need to know about Optimism and its emerging ecosystem. I hope you’ve gained valuable insights to understand the future potential and find opportunities in the crypto market.