Blockchain technologies are transforming the digital landscape, offering new possibilities for decentralized systems and community-driven initiatives. One of the exciting aspects of this evolution is governance, and in this article, we’ll explore the key concepts of Optimism governance, making it easy to understand for newbies to the world of Web3.

Progressive Decentralization

Many blockchain projects start with a centralized group, providing focus in the early stages. However, a truly decentralized autonomous organization (DAO) like Optimism aims for more. In the Optimism ecosystem, we have:

• Optimism Foundation: These are the network founders who kickstart the ecosystem, provide initial resources, and act as community stewards. Eventually, they dissolve.

• Optimism Network: This refers to the autonomous code on the blockchain, including smart contracts and processing of user input.

• Optimism Collective: This diverse global community is responsible for long-term ownership and management of the ecosystem. The term ‘DAO’ encompasses both the Collective and the Network.

To ensure a gradual transfer of network ownership to the community, legal checks and balances are in place, such as the Collective’s ability to remove members of the Foundation.

A New Economy

At the heart of the Optimism Layer 2 (L2) economy lies the ‘Optimistic Flywheel.’ This economic cycle drives revenue, network growth, and progress toward Optimism’s mission:

1. Users and dApps demand network blockspace.

2. The network generates revenue through transaction fees.

3. A portion of these fees supports builders providing impactful public goods infrastructure.

4. Network users gain access to free resources and services, enhancing the value of OP blockspace.

As the on-chain infrastructure becomes more valuable, the demand for Optimism blockspace increases, creating a self-sustaining cycle of growth.

Incentivizing Public Goods

Optimism places a strong emphasis on public-goods infrastructure. Selecting worthy projects for funding isn’t easy. The approach here is ‘Impact = Profit.’ Instead of predicting future impact, funding is assigned retroactively based on historic performance. This model, known as ‘Retroactive Public Goods Funding (RetroPGF),’ incentivizes builders to create public goods beneficial to humanity, shifting away from traditional value-extraction mindsets.

Ether’s Phoenix

Optimism introduces ‘Ether’s Phoenix,’ symbolizing an algorithm that rewards early cooperators who laid the foundation for public goods funding. It’s a future where early investments in public goods are acknowledged, promoting optimism, better systems, and rewarding cooperative efforts.

Introducing the Governing Houses

The Optimism Collective consists of two houses, each with independent and shared responsibilities:

1. Token House: Responsible for managing network upgrades, incentives, and treasury. It incentivizes network economy growth and ensures decentralization.

2. Citizens’ House: Allocates RetroPGF resources to community projects, guided by the ‘Impact = Profit’ ethos, and helps set citizenship parameters. It enhances network quality of life by funding public goods.

Both houses maintain network balance through their duties, voting mechanics, and veto abilities.

• Token House: Stakeholder structure and voting power scaling based on token holdings.

• Citizens’ House: Focuses on improving the value of citizenship by funding projects that enhance network quality of life.

In this simplified breakdown, you’ve been introduced to the fascinating world of Optimism governance in Web3. It’s a system designed to empower communities, promote public goods, and drive decentralization. As the Web3 ecosystem continues to evolve, understanding governance mechanisms like Optimism is key to participating in this exciting digital revolution.