Is Optimism’s ‘Superchain’ Winning the Ethereum Layer-2 Race?

After reading through this intriguing article, it seems to me that the Optimism Foundation and their OP Stack are indeed making significant strides in the layer-2 race. As someone who has been closely following the crypto space for quite some time now, I’ve seen numerous projects come and go, but Optimism appears to be carving out a unique niche for itself.

2023 saw one notable trend among top layer-2 Ethereum initiatives, which involved the rise of “pre-packaged blockchain solutions,” often referred to as “Blockchain-in-a-Box.” These teams actively encouraged developers to replicate their code, enabling them to quickly set up new layer 2 networks.

Currently, it seems that one project stands out distinctly as the front-runner. Notably, when it comes to blockchain projects, the amount of funds being transferred clandestinely plays a significant role.

One of the leading second-level networks, Optimism, has successfully encouraged numerous clients and businesses to set up their own blockchains using Optimism’s tech stack (OP Stack), all under open-source software agreements.

As a crypto investor, I’m thrilled about the momentum building around Optimistic Ethereum (OP Stack). Last year, Coinbase’s Base was the first significant client to emerge from this ecosystem. However, in recent months, the pace has quickened significantly. Notable projects like Uniswap, Sony, and Kraken have announced their intentions to launch new layer-2 networks on OP Stack. This influx of high-profile partners is a promising sign for the future of this scalable, efficient, and cost-effective solution.

In simple terms, layer-2 networks represent a significant advancement in the broader blockchain world, as they are central to developers’ aim to speed up and reduce costs for transactions within the Ethereum system. Ethereum, which ranks second only to Bitcoin, is currently the primary platform for smart contracts, enabling it to manage programs and support applications. It has also emerged as the preferred base for decentralized exchanges and lending platforms. Layer-2 blockchains function like additional networks over Ethereum, allowing transactions to be processed swiftly at a low cost, with the final settlement taking place on the main chain.

One approach for the Optimism Foundation to encourage adoption of their technology by new networks involves distributing substantial amounts of OP tokens via grants. According to Optimism ecosystem leaders, these tokens serve multiple purposes: they aid various projects in initiating development on the OP Stack platform, contribute to the creation of the Optimism Superchain (a network of interconnected OP chains), and participate in the Optimism Collective, which is Optimism’s governance system.

As a crypto investor, my aim is to build up a substantial and influential presence within the market, similar to how VHS surpassed Betamax in the ’80s as the preferred videotape format. The objective is to achieve a significant and uncontested position that sets the standard for others to follow.

Kraken’s OP token grant

The deal with Kraken came with a sizable grant, which included an allocation of 25 million OP tokens, worth about $42.5 million when CoinDesk broke the news recently. Kraken’s network is called “Ink.”

Participants in the OP Stack, including World (formerly known as Worldcoin), Uniswap, and Sony, did not disclose the number of tokens they received as part of their packages. However, according to Andrew Koller, creator of Ink, other participants in the OP Stack were given substantial amounts.

Officials at Optimism Foundation assert that the responsibility for revealing grant amounts lies with each individual project.

In an industry known for its openness, the reluctance to disclose the number of OP tokens allocated to specific chains stirs curiosity about the impact these grants may have had on the related transactions.

A representative from the Optimism Foundation explained to CoinDesk that they have always been open about their treasury, and the Kraken deal is categorized within their “collaboration fund.” This fund is utilized to assist specific projects aimed at boosting the early development of the Optimism blockchain.

Optimism’s Treasury and Grant Breakdown

As of September 30th, approximately 841 million OP tokens are set aside for this type of funding, with roughly 480 million already allocated. This leaves around 361 million OP tokens yet to be committed. At the current value of $1.32 per OP token, this equates to nearly $480 million remaining.

Certain smaller initiatives constructing on the Optimistic (OP) Stack have also been granted tokens as part of their projects. For instance, Celo’s governance body previously announced its expectation to receive up to 6.5 million OP tokens in exchange for developing on the OP Stack, while the Bitcoin-centric BOB project revealed they were still in talks but had tentatively agreed to acquire around 500,000 OP tokens when the deal is finalized.

Tokens assigned to BOB originate from a distinct grant pool known as the Retroactive Public Goods Funding (RPGF). This fund isn’t managed by the Foundation but is distributed via Optimism’s Decentralized Autonomous Organization (DAO). The Grants Council, a component of the DAO, oversees the distribution of these tokens. This distribution process occurs over cycles.

By September 30th, approximately 860 million OP tokens are held in the RPGF (Reward Pool Governance Framework) bucket. This amount is used to recognize and incentivize on-chain contributions made across Optimism and the Superchain, as stated by a representative from the Optimism Foundation. Eligible projects such as Kraken’s Ink can apply for funding through the RPGF.

So has Optimism ultimately won the layer-2 race, and does their grant strategy play into it?

The representative from Optimism Foundation stated via email to CoinDesk that, similar to many other systems within this field, we consider grants as means to assist projects and developers. These allocations are earned when specific growth targets, which are financially beneficial for the entire community, are met. We’re all collaborating to expand the future of Ethereum, and when teams on the Superchain succeed, it advantages the entire Ethereum community. In this context, ROI refers to return on investment.

Has OP Stack Won The Layer-2 Race?

As a researcher delving into blockchain scalability solutions, I find it intriguing to observe the growing preference towards OP Stack as the go-to choice for scaling Layer 2 (L2) systems. While I can’t quite label it a ‘victory’, this trend is undeniably exhilarating.

As an analyst, I find it noteworthy to highlight that the price of the OP token has experienced a significant decrease this year, amounting to approximately 65%. This data is sourced from DigitalCoinPrice. However, it’s important to note that other prominent layer-2 tokens, such as Polygon‘s MATIC and Arbitrum’s ARB, have seen even steeper declines. For instance, MATIC has dropped by 70% this year, while ARB has plummeted by 72%. In contrast, Ethereum’s native cryptocurrency, ETH, is currently showing a modest increase of around 6% for the year so far.

Wyatt commented: “It’s unclear yet whether using the OP Stack is a necessity for launching an L2. However, if major institutions or companies are considering entering this field as an L2, they might find it hard to resist choosing the OP Stack.

Instead of using technical language, let me say that companies such as Offchain Labs, who are responsible for developing the layer-2 platform called Arbitrum, have adopted an unconventional strategy to encourage people to utilize their technology by taking a unique approach in doing so.

one focuses on making announcements, while the other concentrates on achieving genuine success and measuring it through on-chain metrics. The approach they take is to foster real users, developers, and build innovative technology that can support both emerging and established uses of this technology.

Regarding Kraken’s Ink choosing OP Stack, Koller explained to CoinDesk that their decision was primarily based on “which option would enable me to allocate our engineering resources most efficiently.

Koller stated, “Should I focus more on handling security and protocol updates myself, or should I prioritize efficient resource utilization, delivering a great user experience, powerful tooling, and bringing our clients onto the blockchain, making the applications? Our primary concern was the latter.

He added: “Let’s just focus on experience so we don’t have to worry about the complexities of running a blockchain. I think that’s why Optimism was a clear choice.”