Optimism (OP)

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Optimism is a generalized optimistic-rollup that settles to Ethereum. Like Arbitrum, the network provides users with the security of Layer 1 Ethereum along with fast semi-confirmations and reduced transaction fees.

Basics

"Optimism is a Public Benefit Corporation dedicated to scaling Ethereum in a way that enshrines fair access to public goods."

"Optimism is an Ethereum layer-2 scaling solution that uses Optimistic Rollups to process many transactions off-chain while retaining the L1 security guarantees of Ethereum. Importantly, it also separates the roles of transaction ordering, and block validation into two distinct parties."

History

  • Formerly known as Plasma Group — a nonprofit researching Ethereum scalability, managed to raise $3.5m and transition to a for-profit startup under the name Optimism.
  • From Deribit Insights (8-7-2021):

"In mid 2017, Vitalik Buterin and Joseph Poon co-authored a paper proposing Plasma, an early scaling solution for Ethereum. A group of core Ethereum researchers took up the mantle and formed a non-profit research group to build out the vision. Development stalled in late 2019, as some critical design limitations of Plasma became apparent. Undeterred, three of Plasma’s lead researchers—Karl Floersch, Jinglan Wang, and Ben Jones—decided to pivot toward what seemed to be Plasma’s natural successor, the Optimistic Rollup. They formed Optimism PBC in early 2020."

Audits & Exploits

  • Bug bounty program can be found [insert here].
  • Offchain Labs (Arbitrum) disclosed privately two serious vulnerabilities in the Optimism fraud proof system (26-4-2024).
  • From L2beat (13-10-2022):

"Funds can be stolen if…

  1. an invalid state root is submitted to the system (CRITICAL),
  2. a contract receives a malicious code upgrade. There is no delay on code upgrades (CRITICAL).

Funds can be frozen if…

  1. the centralized validator goes down. Users cannot produce blocks themselves and exiting the system requires new block production (CRITICAL).

MEV can be extracted if…

  1. the operator exploits their centralized position and frontruns user transactions."

Bugs/Exploits

"Optimism hired crypto market maker Wintermute to distribute the tokens in a highly anticipated airdrop. But because Optimism sent them to a Wintermute layer-1 address that hadn't yet been synced to layer-2, they were all inaccessible. Wintermute said that the tokens would be secure. But within a day, a hacker stole all 20 million tokens. They were worth $35 million at the time. The address has returned a majority of the OP, and @wintermute_t has committed to reimbursing the Optimism Foundation for the remaining 2mm OP, which was kept as a bounty."

  • From Blockthreat (18-2-2022):

"Optimism patched a critical money printing vulnerability after it was responsibly disclosed by Saurik."

Governance

Admin Keys

"The Superchain Incident Response Upgrade enhances the incident response capabilities across all OP Chains within the Superchain network. A notable feature of the upgrade is its ability to implement a Superchain-wide pause mechanism."

The Optimism Foundation multisig will have the authority to pause and unpause these withdrawals on any OP Chains that opt in.

  • The Optimism Foundation maintains control over Optimism's sequencer, governance, as well as upgrade keys. With plans in the works on decentralizing the Optimism sequencer by introducing additional options, progressively ceding control over governance in H1 and H2'24, and slowly relinquishing control of upgrade keys through a "Proof of Concept" Security Council, Optimism looks to be the first L2 to reach autonomous and decentralized operation (30-11-2023).
  • From L2beat (13-10-2022):

"The system has a centralized sequencer. Fraud proof system is currently under development. Users need to trust block Proposer to submit correct L1 state roots. While proposing blocks is open to anyone the system employs a privileged sequencer that has priority for submitting transaction batches and ordering transactions. Because the state of the system is based on transactions submitted on-chain and anyone can submit their transactions there it allows the users to circumvent censorship by interacting with the smart contract directly.

The system uses the following set of permissioned addresses:

  1. Optimism MultiSig 0x9BA6…6b3A (MultiSig) This address is the owner of the following contracts: OVM_L1CrossDomainMessenger, L1StandardBridge, LibAddressManager. This allows it to censor messages or pause message bridge altogether, upgrade bridge implementation potentially gaining access to all funds stored in a bridge and change the sequencer, state root proposer or any other system component (unlimited upgrade power).
  2. MultiSig participants0x3041…1623 (EOA), 0x3bC4…0AC1 (EOA), 0x4D01…6d15 (EOA), 0x6709…4EAa (EOA), 0x7904…C613 (EOA), 0x7cB0…C54f (EOA), 0x9bbF…31aa (EOA), 0xA902…2c94 (EOA) These addresses are the participants of the 5/8 Optimism MultiSig.
  3. Sequencer 0x6887…2985 (EOA) Central actor allowed to commit L2 transactions to L1.
  4. State Root Proposer 0x4733…3A33 (EOA) Central actor to post new L2 state roots to L1."

"The Optimism Collective will be governed co-equally by two houses:

The Citizens’ House;

The Citizens’ House will govern public goods funding, creating a flywheel of protocol development. Citizenship will be conferred as non-transferrable NFTs, and will grow over time with the community. The Citizens’ House will keep the network in check from plutocratic capture.

The Token House; It governs protocol upgrades, project incentives, and more. It drives growth."

  • Fully permissionless release was on 17-12-2021.
  • From their blog (16-1-2021):

"The most effective security approach for our current needs starts with a layered defense in depth strategy, combined with audits when it makes sense. These layers of defense are centralized, and as we gain confidence in the system they will be removed. Until then, please do not consider this the full and final protocol. While we have dealt with all of the major security issues surfaced through multiple internal reviews of the contracts, as well as consultations with external auditors, we are launching with several additional safeguards.

  1. Defense Layer #1: Permissioned contract deployment. The most probable way to bypass the core security is through deploying a malicious contract that breaks the OVM’s L2 sandbox. To minimize this risk, we are temporarily maintaining a whitelist of deployers until a later release.
  2. Defense Layer #2: Authenticated withdrawals. If the first line of defense is breached, then the next risk is invalid withdrawals. To prevent this, we have added a check that allows us to investigate pending withdrawals and stop misbehavior before it hits L1.
  3. Defense Layer #3: Upgrade keys. The final layer of defense relies on admin keys which can be used to upgrade the contracts in emergencies. We also plan to use these keys on a bi-monthly basis to ship scheduled improvements and new features."

DAO

Treasury

"The Optimism Foundation controls the lone sequencer. Since its mainnet inception, the Optimism Foundation has allocated all sequencer revenues, denominated in ETH, to support Retroactive Public Goods Funding."

  • 10% of the Base tx fees will go to the Optimism treasury (2-2023). Got turned into 2.5% (8-2023), while meanwhile Optimism granting up to ~118M OP tokens (2.7% of supply) over 6 years to Coinbase.

Token

Launch

  • Announced its token after lots of speculation on the 27th of April 2022.

Token allocation

40% of eligible addresses never claimed their tokens ~55% of all addresses that claimed the airdrop transferred or sold their OP tokens on the Optimism rollup.

Utility

Token Details

Coin Distribution

Technology

  • Whitepaper or docs can be found here.
  • Code can be viewed here.
  • Built on: Ethereum
  • Consensus mechanism:
  • Algorithm:
  • Virtual Machine: "Optimism is pursuing the EVM Equivalence model. No changes to smart contracts are required regardless of the language they are written in, i.e. anything deployed on L1 can be deployed on Optimism." (13-10-2022)
  • Development language:

Implementations

"The Coinbase and Optimism teams had already been working together for more than a year and contributed heavily to the development of EIP-4844. Also called Proto-Danksharding, EIP-4844 will decrease L2 transaction fees by 10-100x. Coinbase is now a core contributor to the OP Stack as well, joining as the second core project team. This furthers Optimism’s vision of being a super-chain, where the OP codebase is continuously forked to create new chains that are optimized for different use cases. These new chains, such as Base, will have seamless interoperability with one another since they all use the OP Stack."

10% of the Base tx fees will go to the Optimism treasury.

Transaction Details

How it works

"When Optimism users sign a transaction and pay a gas fee in ETH, the pending transaction is stored in a private mempool before being executed by the sequencer. Blocks of executed transactions on OP Mainnet are created every two seconds and periodically batch-submitted as transaction call data to Ethereum by the sequencer."

"Optimism uses what are called optimistic rollups. What a rollup does is “roll up” what amounts to hundreds of Ethereum transactions. This bundle of transactions is represented by a single transaction on the Ethereum mainnet. By doing this, it ends up that there is only one transaction’s worth of gas fees.

When using an optimistic roll up, a network’s transactions are taken to be correct until they are proven false. In other words, the transactions are published to Ethereum without direct proof of validity- as the network is “optimistic” about them- and are instead regarded as pending. Transactions can be challenged as invalid by submitting a “fraud proof” within what is a 7-day challenge window. After the seven day challenge window closes, the transactions go through, and are recorded on the Ethereum chain."

"All executed transactions are submitted to an on chain smart contract. The execution of the rollup is based entirely on the submitted transactions, so anyone monitoring the contract can know the correct state of the rollup chain."

Fees

Upgrades

  • OP Labs launched a feature-complete fault proof system on the OP Sepolia testnet (16-5-2024).
  • From Unchained (7-6-2023):

Bedrock, the Optimism Protocol’s first major upgrade proposal, went live on Tuesday, which will significantly drop gas fees via data compression techniques, shorten deposit times, and advance its own layer-2 modularity with the OP stack, or the Superchain, calling it “a network of L2 chains that share bridging, decentralized governance, upgrades, a communication layer and more.”

"With the Nov 2021 upgrade to "EVM equivalent" OVM 2.0 old fraud proof system has been disabled while the new fraud-proof system is being built."

"Optimism released their Optimistic Rollup testnet last week with Synthetix as a launch partner. They also detailed the testnet rollout plans and the path towards mainnet."

Staking

Liquidity Mining

Interoperability

Other Details

Optimism & MEVA

"Importantly, the Optimism system enables the capture and repurposing of MEV. In the Optimism L2 system, the roles that miners have (to order transactions and validate blocks) is divided into two separate actors: Sequencers order transactions and Validators add them to the Optimism L2 blockchain.

The right to become a sequencer is then auctioned off to the free market. This is called MEVA, or MEV Auctions, where the right to be able to capture MEV is repeatedly auctioned off for baskets of time.

Note: The specific designs around how a MEV Auction works in practice is still under construction, but the general idea is that there are different ways to extract and focus MEV with a free-market auction mechanism. As Optimism gets rolled out to more and more DeFi apps, the data will come in about how to best construct a MEVA.

Just as frontrunners attempted to outbid each other’s transactions to capture MEV, those who wish to capture MEVA are forced to bid for the right to sequence transactions, and ultimately hands this value off to the auctioneer. That auctioneer is Optimism, and the Optimism team intends to enable the redirecting of this captured value to parties that were never going to be able to access it in the first place, but arguably should have: The developers who built the contracts in the first place!

If there’s a group of average retail market participants who are using a Public Good like Uniswap, then there is therefore MEV. If there is MEV, there are bids to sequence the transaction. If there are bids to sequence the transactions, then there are MEVAs where the value is converged.

But this entire chain of economic activity is a result of some developer that built the contracts being transacted on in the first place… and nowhere in this economic chain is the developer being compensated or rewarded for their work. Optimism and MEVA fixes this, offering a potential business model for smart-contract developers."

Oracle Method

Privacy Method

Compliance

Their Projects

"Synthetix and Optimism are extremely excited to announce a new demo of Synthetix.Exchange on OVM (Optimistic Virtual Machine), a Layer 2 (L2) scaling solution. This integration demonstrates the power of OVM to deliver high-speed Ethereum transactions to supercharge the Synthetix trading experience.

Optimism built the OVM to scale Ethereum on L2, a scaling layer intended to work with Ethereum L1 to allow vastly more transactions to be executed without security tradeoffs. The Optimism team has previously launched a demo with Uniswap at Devcon V in October 2019, which used a custom OVM. This new demo showcases a general alpha version of the OVM requiring no custom code, ahead of a launch later this year."

Roadmap

  • Can be found [Insert link here].
  • Optimism delayed the Bedrock upgrade vote to resolve issues from bounty contest (18-2-2023).
  • Working on Bedrock (1-2023):

"Bedrock is Optimism’s custom rollup architecture, building on their already impressive EVM-equivalent chain. Bedrock introduces features that reduce deposit times from 10 minutes to 2.5 (4x improvement) and reduces the cost of data submission to L1s by ~20% (this is on top of any cost enhancements that arise from EIP-4844). It has cut the difference between Bedrock execution layer client and Geth down to merely 500 lines of code. On the 12th January OP Labs successfully completed an upgrade of Optimism’s Goerli Testnet to Bedrock."

  • From their 2020 year-end article (1-1-2021):

"Two weeks ago, we froze our code in order to prepare for a preliminary mainnet trial run with Synthetix. This means we are in the final legs of taking our first users through the entire product lifecycle: from the initial stage of converting contracts to the OVM, to deploying onto mainnet.

We will be holding upgrade keys for awhile (at least the first 6 months) to ensure the safety of user funds. Until we relinquish those keys, please do not consider this the full and final system."

  • Mainnet got delayed (26-3-2021) to sometime in July 2021 after first being scheduled for March.

Revenue

  • Revenue has been between $6-12.5M in the last three quarters (10-2023). With on-chain profit being growing from 1.3 to $2.8M.
  • From a commissioned Messari report (16-5-2024):

"In Q1 2024, OP Mainnet’s revenue (USD) increased to $16 million (+78% QoQ) due to higher network activity and a rise in the average transaction fee. The average transaction fee increased to $0.42 (+48% QoQ). However, the average transaction fee saw a significant reduction in the second half of March due to EIP-4844. Optimism adopted EIP-4844 on March 14th in the Ecotone Upgrade, leading to a significant drop in L1 submission costs. The daily L1 submission cost average fell to approximately $830 per day from an average of $420,000 per day in the weeks prior, a 99% reduction.

The onchain profit for OP Mainnet in Q1 2024 was $2 million (+14% QoQ). Additionally, the Canyon and Delta Upgrades also contributed to the reduction in transaction fees. This significant cost reduction will impact the Superchain’s finances moving forward."

Usage

"Daily transactions on Optimism are down almost 75% since hitting an all-time high on Jan. 12. The drop in daily transactions coincides with the end of Optimism’s Quests program. The first series of quests began in September and ended on Jan. 17.

“Just by reading about different apps and completing a short quiz and task, users will be able to mint a commemorative NFT that represents the completion of the respective quest,” a guide on Optimism’s website reads. Self-proclaimed DeFi analyst DeFyist noted that Quest users were likely hoping their interaction would qualify them for Optimism’s second airdrop, which has yet to be announced.

Even as the number of transactions on Optimism’s main competitor, Arbitrum, fell through the final two months of 2022, those on Optimism soared. Daily transactions on Optimism hit an all-time high of 800,000 on Jan. 12. The seven-day moving average peaked five days later at more than 690,000. By every available metric, however, usage of the platform has since fallen off a cliff."

"Uniswap V3 on Optimism has over $4.25 million in TVL, and is doing over $1.75 million in volume in under 48 hours!"

Projects that use or built on it

DApps on Optimism
L2s on the OP stack

Competition

"The simplest way to describe the difference is that Optimism’s dispute resolution relies more heavily on the Ethereum Virtual Machine (EVM) than Arbitrum’s. When someone submits a challenge on Optimism, the entire transaction in question is run through the EVM. By contrast, Arbitrum uses an offchain dispute resolution process to whittle down the dispute to a single step within a transaction. The protocol then sends this single step assertion, as opposed to the entire transaction, to the EVM for final verification. Conceptually, Optimism’s dispute resolution process is thus considerably simpler than Arbitrum’s. Optimism’s approach to dispute resolution—i.e. running entire transactions through the EVM—is not just conceptually simpler: it’s quicker too. There aren’t “multiple rounds” of back and forth, as there are in Arbitrum’s process. In fact, for this reason, Optimism’s rollups are often called “single round” whereas Arbitrum’s are “multi round.” Practically speaking, this means that in the case of a disputed transaction, final confirmation on Ethereum is delayed in Arbitrum’s case longer than it is in Optimism’s case.

On the flip side, the advantage of Arbitrum’s dispute resolution is that it is cheaper in terms of onchain (i.e. on Ethereum) transaction costs. The bite-sized chunk of code that the EVM eventually processes after the completion of the back-and-forth dispute resolution process requires much less gas (in most cases) than it does to re-process the entire transaction onchain. Arbitrum should be more gas efficient than Optimism—and therefore cheaper for users—not only in the rare case of a dispute, but also in the predominant “happy” case."

"The biggest distinction is what happens when two parties disagree on the state after executing a tx ie. implementation of the fraud proof (FP) mechanism. Optimism uses single round fraud proofs. This means that L1 executes the whole L2 transaction on-chain to verify the state root. This makes FPs instant which is nice. But there are some problems too:

• you need to supervise tx execution hence need for OVM (aka rewriting EVM to avoid sideeffects) • L2 tx gas is bound by L1 block gas limit • you need on-chain state roots after each TX - costs more :( • source of potential security issues

Arbitrum features multi-round fraud proofs. You can dumb it down to doing a binary search between two parties to find the first opcode of a whole block that they disagree on. Once found only this particular opcode is executed on-chain. It has some nice properties:

• it requires posting on-chain just one state proof for a whole bunch of txs, • L1 block gas limit doesn't matter since L2 txs will never entirely execute on L1

Drawbacks: • It requires EVM -> AVM translation (thankfully it's automatic) • it's slow - in the worst case it takes up to 2 weeks to finish FP. Realistically it's 1 week. • requires original claimer to be online and cooperative

Optimism's approach has one *HUGE* drawback. Imagine that there is a hardfork and Ethereum consensus rules change. One of the opcodes is removed/repriced or modified in some other way. Suddenly re-executing past tx on L1 will result in a different final state. Arbitrum fully controls AVM specs and doesn't have this problem.

Optimism requires a special solidity compiler to generate OVM bytecode. So, unfortunately, it works only with Solidity and only with particular versions of solidity. On the other hand, their L2 node is just modified geth which is great for compatibility.

Arbitrum on the surface is fully compatible with EVM/JSON RPC spec but their node is a custom implementation. It does automatic EVM→ AVM transpilation to support fraud proofs. Thanks to this low-level translation, it supports any EVM language (vyper, YUL+ etc).

Optimism uses weth but Arbtirum has native eth support. Optimism launches with wallet abstraction built in too. Arbitrum launches with a unified permissionless bridge to bridge any tokens to L2 (it deploys generic ERC20 as a L2 counterpart). Optimism prefers dedicated bridges but of course, deploying "unibridge" on optimism is possible as well."

Pros and Cons

Pros

Cons

"Joseph Delong said he believed Optimism favored Uniswap because of influence from the investors Andreesen Horowitz (a16z) and Paradigm. Both funds have made investments in Uniswap and Optimism, as well many other leading crypto projects.  According to Delong, the two VCs may have “colluded” to influence and benefit their vested projects."

Team, Funding, Partners

Team

Funding

Partners 

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