Today I wanted to talk to you about an important topic for DeFi where we usually only scratch the surface, Optimism's OP Stack. First and foremost, to fully understand today’s topic, some introductions are necessary.
What is Optimism (OP)?
Optimism is a scalability solution for Ethereum that uses optimistic rollup technology. Its goal is simple, to allow faster and cheaper transactions on the Ethereum blockchain by moving most transactions off the main chain and processing them on a secondary layer.
We are talking about layer 2 here. These solutions have been gaining popularity lately, with well-known names like Arbitrum, ZkSync, Base, Polygon zkEVM, and others.
Optimism is governed/managed by the DAO called "Optimism Collective".
Another important point to introduce is Optimism's ideology. The collective's desire is to maximize the adoption of blockchain worldwide. To achieve this, the collective is willing to offer most of its solutions as open source and to encourage its community to contribute to the development of the network and its technology.
Now that this context is set, we can address the core topic of this article, the OP Stack.
What is the OP Stack?
The OP Stack refers to the various components of the architecture on which Optimism is built. It is essentially the "source code" of our layer 2.
As you may have guessed from the introduction of OP and its ideology, the OP Stack is open source. With its first version called "bedrock", Optimism's goal is to provide a solid foundation to facilitate the development of scalability solutions on EVM-compatible blockchains.
Have you grasped the concept behind the OP Stack? We will now delve deeper into how it works.
The architecture of the OP stack is divided into several layers, which are activated in a specific order during a transaction. I will present these different layers to you in a concise manner so that you understand the role of each one.
Hold on tight, we have 6 to go through together.
First, we have the governance layer. This layer consists of all the modules used to manage the OP Stack. This layer is responsible for system configuration, updates, and design decisions.
Next, the OP stack has a settlement layer. This layer allows external blockchains to read the state of the blockchain.
I would describe these first two layers as the "framework layer". They are essential to the OP stack but are not necessarily involved in every transaction on the network. Unlike the next layers I'm about to describe.
Starting with the data availability layer. It is through this module that the network reads and publishes data on the blockchain. When transactions are initiated, it is the derivation layer that determines how the data will be formatted/organized before sending it to the next module.
The execution layer allows for the processing of transactions and changes in the blockchain's state. Currently, this module consists of a slightly modified version of the EVM (Ethereum Virtual Machine).
Once the transaction is executed, the sequencing layer retrieves the data from the execution layer and publishes it on the data availability layer. This module is responsible for confirming the transaction.
If all these explanations seem abstract to you, I offer you a simple picture summarizing the different modules of the OP stack and their order of mobilization during a transaction.
Have you understood everything? Are you wondering why the operation of OP's infrastructure is interesting? Remember what I told you earlier, OP's goal is to maximize the adoption of blockchain.
By freely and openly offering this solid structural foundation to everyone, OP aims to achieve this. To date, the two most well-known entities that have built a layer 2 with the OP stack as a foundation are Coinbase with its Base layer 2 and Binance with the layer 2 of its BSC, opBNB.
Okay, but what's in it for the Optimism collective?
The main interest for OP is to develop its next project; Superchain.
After its first update, Bedrock, OP's goal is now to develop a network of chains sharing the same governance, communication layers, bridges, etc.
The aim is to create a unified network consisting of all blockchains built on the OP Stack.
I won't go into further detail about the specifics of OP's Superchain update, as it is very complex and deserves an article of its own.
However, keep in mind that this project is already well underway, with Base having already announced joining the Superchain community. According to announcements from the Optimism collective and Base on August 24th, the Base network can no longer be upgraded without the collective's agreement.
To join Superchain, Base proposed to the DAO that 15% of the network's transaction fees be directly directed into the DAO's treasury. I illustrate how the 15% is calculated in the diagram below;
For every $1 million in transaction fees paid on Base, $98,000 goes into OP's treasury.
In exchange for this 15%, Base will be allocated 2.75% of OP's supply over 6 years, which is 118 million tokens, to actively participate in governance. The token allocation to Base will be carried out according to the following schedule:
Receipt of 10,737,418 OP locked (blocked) for 1 year once the agreement is voted on by the DAO.
107,374,177 OP unlocked linearly every quarter over 6 years.
These tokens will come directly from the DAO's treasury. In the diagram below, this corresponds to the "Ecosystem fund" section. The tokens specifically come from the "Seed fund" portion.
And the OP Token, is it interesting?
Despite a treasury that will continue to fill up as the OP stack and the Superchain project grow, at the time of writing this article, the tokenomics of OP is, in my opinion, not satisfactory for several reasons:
First, 26% of the tokens currently in circulation belong to VCs (Venture Capitalists) as they were obtained during fundraising. These players, although they try not to affect the price too violently when taking profits, will, in my opinion, exert significant selling pressure on the token in the medium term.
If you're following closely, you'll note that I wrote that 26% of OP tokens belong to VCs while the OP chart only indicates 17%. I obtained this information through DeFiLlama, which allows us to analyze the distribution of tokens from the circulating supply.
The discrepancies between the distributions described by OP in its documentation and those in the table above are due to different unlocking schedules as well as potential allocation changes voted on by the DAO.
Another negative point, 17M OP tokens are unlocked every day as shown in the DefiLlama excerpt below;
It is also important to emphasize that the "total supply" (maximum number of tokens available) has an inflation rate of 2% per year. However, this level of inflation has been paused by the DAO until April 2024.
To conclude on the negative points, the amounts paid to the OP treasury as part of agreements like the one concluded with Base do not yet have a very refined utility in my opinion. When looking at OP's documents, allocating "grants" to projects developing on the layer is the only intended use for these funds to date.
The interest for the token holders is therefore minimal at this time.
Unfortunately, the only utility of the OP token is governance. A positive point, however, is that major players such as Binance and Base use the OP stack and will have every interest in influencing its development.
With the development of new infrastructures based on the OP stack, many could be the players wanting to emulate Base and get involved in the Superchain project.
Finally, one of the theories for the future of DeFi is that its adoption by retails could be done on the members of the Superchain network. Base, being the Layer 2 created by the second largest centralized exchange, is intended to become one of the main gateways to DeFi.
As of today, holding the OP token could be seen as a way to expose oneself to the potential success of the project led by the Optimism Collective.
After reading this article, I invite you to reflect: what do you think about the future of Optimism, its OP Stack, and the Superchain project?