The Optimism Ecosystem

Transactions on Ethereum are slow and costly. In many cases the gas fees associated with smaller swaps on DEXs may be more costly than the value of the swap itself. In 2021 alone, Ethereum fees increased 845% compared to the previous year due to the Ethereum network reaching full capacity. Since January 2020 average block capacity has grown from ~70% to a sustained level of 98%. Because of this, scaling solutions have become crucial.

Scaling solutions can be broken down into two main categories: Layer-1 (L1) and Layer-2 (L2). L1 scaling refers to techniques for increasing Ethereum’s on-chain capacity by making changes to Ethereum’s architecture. L2 scaling refers to techniques for scaling Ethereum by taking computation and transactions off the Ethereum base chain to a second layer.

While there are many effective L2 scaling solutions building atop Ethereum, one of the most notable is a16z backed Optimism. By running computations off-chain, Optimism is able to reduce Ethereum gas fees by 10,000% or more and increase throughput up to 200x.

What is Optimism?

Optimism, formerly known as the Plasma Group, is the team behind the development of the Optimistic Rollup. Rollups are smart contracts on Ethereum that bridge the Ethereum main chain and L2. Rollups receive transaction data from the Ethereum main chain, send it to L2 where the computations take place, and then receive the results of the L2 computations. It is important to note that there are two variations of Rollups: Optimistic Rollups and ZK-Rollups. Optimism utilizes only Optimistic Rollups.

On Optimism, transactions sent to L2 are received by Sequencers who have a responsibility to accurately execute the transactions received. Sequencers are rewarded for executing transactions properly but are punished if they act maliciously by having their staked funds slashed.