For cryptocurrency investors, Optimism’s Token is a Bust. The Ethereum L2 solution is not.

When three ex-EthereumETH
developers who built the OptimismOP
blockchain in 2019 launched its own native token – OP – in May 2022, it was definitely not a get-rich-quick thing. If you could have shorted the OP token, you would have done well. OP fell 70% in the first 24 hours and is down 46% since then. But OP is not for investors. This is for developers working on the Ethereum blockchain, creating decentralized apps for a Web3 future that everyone is still waiting for and still building. Word is that Optimism, the Layer 2 (L2) solution for Ethereum, is a hit with the target audience.

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

“By making Ethereum more accessible and user-friendly, L2 solutions reduce transaction costs and increase processing times,” said 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 these reasons and more, we are active in both Ethereum and new Layer 2 solutions like Base,” he says, naming Coinbase’s own Layer 2 solution that was launched this year. Other L2s include ArbitrumARB
and Starkware (non-exchangeable).

What is an L2: Why should investors care?

First, a brief explanation for those with Coinbase accounts who only invest in cryptocurrency but don’t build d’apps, or even know what a d’app is. (It stands for decentralized applications.)

L2 is needed to make Ethereum faster, and it keeps investors in ETH instead of selling for alternative blockchains like Hong Kong-based CardanoADA
. The better L2s get, the more attractive Ethereum becomes. Even better, 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 difficult to build out – so they are slower, extensible universes – while Layer 2 blockchains are faster and more extensible 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 others.

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

“We have used Optimism to build since it is difficult to create derivatives-based financial products that require high throughput on Ethereum. We want faster transactions,” said Gautham Santhosh, co-founder of Dubai-based Polynomial Protocol, a decentralized crypto derivatives trading exchange that uses the Synthetix protocol about optimism.

Santhosh says Ethereum needs at least 13 seconds for transactions to settle. “But using Optimisme we can make it faster for our products and provide cheaper transactions with the same security as Ethereum,” says Santhosh.

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

Since then, Optimism has deployed over 7,000 contracts, brought in well over 300,000 unique addresses, secured nearly $1 billion in value and enabled nearly $20 billion in transactions, with about $24.5 million in revenue, the company said.

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

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

Optimism is growing

The optimism stemmed from complaints about Ethereum’s slowness, which sort of came to a head in 2019. Optimism’s developers created their first rollup design at the time.

They raised $3.5 million from Web3 investment firm Paradigm and IDEO CoLab Ventures.

Two years later, they have over $175 million in funding from Paradigm, and now from Andreessen Horowitz’s a16z venture fund. It is run by Internet pioneer and Forbes-listed billionaire Marc Andreessen and investor Ben Horowitz of Menlo Park, California.

Optimism has cumulatively saved users $2.69 billion in fees, 15.8 years of waiting for transaction confirmations, and currently secures $2.8 billion in onchain value, the company says.

Still being hard on themselves, they say on their blog page that “no one has truly scaled Ethereum. And that includes us.”

If Ethereum is ever going to compete with GoogleGOOG
, for example, and take d’apps to the masses, it needs Internet-level scale and speed. No single blockchain today can offer that.

“Optimism is dedicated to scaling Ethereum’s technology and expanding its ability to coordinate people from around the world to build effective decentralized power structures,” said Binji Pande, Developer Advocate at OP Labs, a global group of developers working with Optimism that act as dedicated to take it to ‘The Man’ as they play with computer code. “We’re building best-in-class software to run L2 blockchains.”

Optimism’s Ethereum Virtual Machine-like (EVM) architecture scales Ethereum applications “without surprises,” Pande says, meaning any developer familiar with building on Ethereum can build with Optimism’s modular code base, called the OP Stack, without had to learn something new. coding language or have new technology requirements.

“We have been developing products and applications on the Ethereum network since 2016, so we have seen the history of L2 implementation with our own eyes,” says Ihor Kubalskyi, founder of QBEin, a blockchain development company in Tbilisi, Georgia.

“What matters about L2 is the ability to group transactions – network bandwidth has increased with L2, and the cost of commissions for an individual user has decreased. Because of L2, Ethereum has become much more practical and stable for real business processes. By move some of our transactions to L2, we can significantly reduce fees and improve transaction speed for our users.”

Since Optimism launched its mainnet in late December 2021, Ethereum’s dollar price has fallen 59.7%. L2 has not helped ETH enthusiasm among crytpo investors.

On April 22, Forbes cryptocurrency specialist Billy Bambrough predicted that bitcoin and cryptocurrencies in general were poised for a “parabolic” price move. BitcoinBTC
is up 7.6% since. Ethereum is up just over 3%. Both beat the Nasdaq.

On April 26, Bambrough called the end of the “crypto winter”. Both ETH and BTC rocketed on Sunday morning, but have since fallen back to April 9 levels.

*The author of this article invests in bitcoin and Cardano.