Can the Optimism blockchain win the battle for rollups?

by · July 12, 2022

Ethereum is plagued with criticism for its less than optimal scaling capabilities and high gas prices. There have been talks about increasing the scaling capacity of the Ethereum network for a while now.

However, the Ethereum ecosystem needs a scaling solution right now, and if Ethereum is unable to provide these new applications with a platform with enough scaling capabilities, they may seek alternatives such as the BNB chain or Cardano. Optimism rollout was created to accurately address Ethereum’s scalability issue.

Optimism Rollup network is one of several solutions that try to solve Ethereum’s congestion problem. The Ethereum network is often overloaded to almost maximum capacity, and until upgrades to the main blockchain are made, scaling solutions such as Optimism Ethereum’s transaction capabilities remain usable without wasting a fortune on gas charges.

In short, Optimism uses advanced data compression techniques to speed up and cut the cost of Ethereum transactions. They do this using a technique called Optimistic Rollups, in which multiple transactions are “rolled together” into one transaction and settled on another cheaper blockchain. The confirmed transactions are then returned to the Ethereum blockchain. The biggest advantage of Optimistic Rollups is the fact that they do not calculate by default, which theoretically leads to scalability gains. Estimates say Optimistic Rollups can offer 10-100x improvements in scalability. On the downside, however, is the existence of a “challenge period”, which is a time window where anyone can challenge claims and increase the withdrawal period.

Battle of the rollups

Now a natural question arises: How is this different from widely used zero-knowledge (zk) summaries?

Zk-Rollups rely on a zero-knowledge certificate for all state transitions to work correctly. Afterwards, each transaction is compared to the smart contract on the main chain. Meanwhile, Optimistic Rollups is dependent on a user submitting a new state root to the side chain without validating the collective contract.

When it comes to applications, perhaps the biggest difference between the two lies in the cost, as Optimistic Rollups require nodes to simply execute contracts, while zk-Rollups need to produce a complex cryptographic proof that requires hundreds or thousands of expensive elliptical curve operations in one proof. This makes zk-Rollups significantly more expensive to use than Optimistic Rollups. However, zk systems have an advantage in building a bridge to layer 1.

In the world of Optimistic Rollups, there are two main players: Optimism and Arbitrum. The main difference between the two lies in the way they generate proof of fraud for the network. While the current version of Optimism requires non-interactive proof of fraud, Arbitum uses an interactive method. Other differences include their Ethereum Virtual Machine (EVM) compatibility and Ethereum tools.

There are currently over 1,000 projects using Optimism, and the total value locked in this chain, according to DefiLlama, is $ 364.7 million at the time of writing. One of their biggest advocates seems to be Synthetix, which has over $ 120 million locked in Optimism. Asked about their confidence in optimism, a spokesman for the Synthetix team told the Cointelegraph:

“Synthetix was an early user of Optimism and decided on a protocol back in 2020 to build on this Ethereum scaling solution. Back then, it was about choosing a solution with conviction. We identified early on that we absolutely had to have scaling, since we are a very complex smart contract package. Perpetual futures and oracles with low latency did not happen on L1. “

When Cointelegraph asked why Sythethix chose Optimism over Arbitium, given that Arbitium was market-ready before Optimism, they replied:

“Both Arbitrum and Optimism had a lot of work to do, but we made the decision to commit to working with a specific team, which was Optimism, and bear much of the cost it would take to get to the main. We chose Optimism because they have some of the best researchers in the Ethereum community, and we had great confidence that they would be able to implement their vision. “

In many ways, Synthetix has taken a similar approach as they did with Chainlink in their pre-mainnet process. Synthetix has invested heavily in transferring the protocol from a user-facing protocol, which enables direct trading and switching to a base layer on Optimism for other protocols to build on top of. Since its launch on Optimism, the team at Synthetix has seen several other protocols integrated with Synthetix to establish the foundation of the Synthetix ecosystem, which enables unique and efficient trading across multiple financial derivatives.

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However, many in the industry share the same view. Jagdeep Sindhu, the main developer and president of Syscoin, told the Cointelegraph that the traction Optimism has gained is short-lived, and in the long run, Arbitium may have the advantage over it. He elaborated:

“Optimism is the front line of EIP-4844 (blob tx data) as well as Cannon, which is in the new bedrock release. This means that it removes the OVM interpreter and is directly dependent on EVM execution for fraudulent evidence. Nitro of Arbitrum does it “Arbitrum is a bit more wordy when it comes to planning the release. We feel that Arbitrum is closer to the release, but it works under more of a closed source method, which makes it difficult to know before all the tools are released.”

Jagdeep thinks it’s just a matter of time before the release of Nitro and the pendulum will return in Arbitium’s favor. He continued:

“We put Nitro on about a 1-2 month release schedule and Cannon on a 3-6 month release schedule, given the current state of the code bases. We do not feel that optimism will increase on Arbitrum in the long run, because when Nitro is released, it will also be considered for adoption. “

The increasing traction of optimism

Optimism has received institutional support from the likes of Andreessen Horowitz (a16z) and Paradigm. In March 2022, they raised a total of $ 150 million in a $ 1.65 billion Series B funding round.

In the press release announcing the Serie A funding for Optimism, a16z said:

“One of the most exciting things about Optimism has been that it can in many ways be seen as an extension of Ethereum – from philosophy down to the technology table. This close connection to Ethereum’s development paradigms results in a very simple transition for developers, wallets and users: no new programming languages, minimal code changes to existing contracts required, and clear support for most existing Ethereum tools. ”

The aspect of aligning the core philosophies of both Optimism and Ethereum was recently praised by Ethereum co-founder Vitalik Buterin as well:

Token House, which is already active, controls technical decisions related to Optimism, such as software upgrades. Citizens’ House is scheduled to be active later in 2022 and will govern decisions on the financing of public goods.

Speaking about the management of Optimism, the founder of Wealth Mastery, Lark Davis – popularly known as TheCryptoLark – told Cointelegraph:

“Governance is most often a whale game. And the participation rate for governance is often very low. So using a non-token model actually makes sense. That way, smaller, more active members of society actually mean, and big lazy whales mean less. ”

Optimism’s roadmaps include updates to the Optimism protocol, such as next-generation fail-safe, sharded rollups, and decentralized sequences. The decentralized sequencer, which is the technology responsible for creating blocks on Optimism, provides an opportunity to move most transactions outside the chain.

Optimism token and airdrop

Optimism launched its original OP token on May 31, 2022, where a total of 231,000 addresses were eligible to claim 214 million OP tokens as part of their first airdrop. This was one of the most prominent events in the history of Optimism in terms of tokenomics, as the 214 million OP tokens accounted for 5% of the total supply of 4.29 billion. However, 95% of tokens have not yet hit the market.

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OP tokens were distributed according to the following:

  • 19% of the initial OP token supply is reserved for user air drip.
  • 25% of the original OP token supply is allocated to proactive project financing.
  • 20% of the original OP token supply plus inflation is allocated to retroactive financing of public goods.
  • 19% of the original OP token supply is allocated to core contributors.
  • 17% of the original OP token supply is allocated to OP investors.

Optimism-based projects have increased the interest of both developers and people with a monetary interest in the token. Despite institutional interest from prestigious companies such as a16z and industry leaders such as Buterin, the price of the OP token has fallen from $ 4.50 to just over $ 1.00. Much of this can be attributed to market conditions in general and the current limited use of OP tokens. But as the market becomes bullish and the Ethereum network becomes more congested, interest in Optimism is likely to pick up.