Being Optimistic
By Tayyab Hussain.
We left off last time mentioning Optimism, but didn’t really go too deep into it. There is quite a bit of history around how Optimism got started, but better than ME telling you… why not let Jing Wang, CEO of Optimism, tell you the story herself?
What makes a rollup Optimistic?
There are currently two competing types of Rollups, remember those exit ramps and separate towns, which are differentiated by “monitoring” technology that is used to prove that all the transactions happening on its chain are legit and not fraudulent. Those are zero knowledge rollups (don’t worry too much about this for now), and optimistic rollups. This is the primary technology that Optimism utilizes. Optimistic rollups are considered “optimistic” because they assume off-chain transactions are valid and don’t publish proofs of validity for transaction batches posted on-chain.
Let’s continue to build upon our previous analogy of highways and rollup towns. The citizens of optimistic rollup towns are generally happy and have a positive outlook on the world, so when you’re hanging out and making transactions, they automatically assume that the money you brought over was legit. And that any transaction happening is also valid. It’s a good way for the town to live, they assume innocent until proven guilty and it’s much easier and smoother for everyone to live this way.
But, of course you will always get someone trying to break the rules and do something fraudulent. So, what do we do? Well, luckily, the optimistic system has a safety mechanism that allows any citizen to raise a concern and prove any fraudulent activity. What happens is that the optimistic rollup goes to Ethereum and says “hey, do you mind checking this out? Does this sound right to you that some fraudulent activity has taken place here?” It uses a “fraud-proof” mechanism to do this. If everything checks out, then everything can go on normally, if not it is corrected and things go back to normal behavior.
But, one major drawback to this system is that to make sure there is ample time for someone to raise concerns, all withdrawals have a 7-day waiting period. After the 7 day period, withdrawal transactions are assumed to be final and permanent. This 7-day period is actually arbitrary, and can be reduced as well, but of course this comes with the tradeoff of security.
OP Mainnet
One of the primary builders of optimistic rollups is well the company we mentioned above Optimism. Yes, I know optimistic rollups, and Optimism… don’t worry it get’s more confusing with OP Mainnet :)
OP Mainnet is an instance of an optimistic rollup, run by the OP Labs (Optimism). Think of OP Mainnet as one of the first official rollup towns on Ethereum that uses optimistic technology. You can do the same things you can do on Ethereum, but you get the benefits of faster and cheaper transactions. Think of OP Mainnet as the Jamestown, Virginia as the first rollup colony settled in the current United States (Ethereum).
As of the writing of this article there is approximately $2.5B in Total Value Locked, which is an approximate measure of the amount of Ethereum/ERC-20’s that are “checked-in” to this rollup town… like a town net-worth. Many major projects are also either already launched on or are supported on OP Mainnet including Uniswap, PoolTogether, Synthetix, and many more.
OP Mainnet was soft launched with restrictions on who could transact and deploy contracts in January 2021, and then officially went to mainnet around December 2021. This gave the OP Mainnet developers that time to make sure everything was working as expected before giving permissionless access to everyone in crypto.
OP Collective & Token
Now, rollups are interesting and all, but I think it really understates the forward thinking that Optimism brought to the industry. Specifically with their OP Token and their unique governance model.
Optimism deeply believes in the idea of brand new democratic governance models as well as supporting public goods. They adhere to an the axiom of impact = profit — the principle that a positive impact to the collective should be rewarded with profit to the individual. The OP Collective is a bicameral governance structure similar to the legislative branch of the United States where there is a Senate and a House of Representatives. The two houses being: the Token House and the Citizens’ House.
The Token House leverages token voting meaning 1 OP Token equals 1 vote in this house. The Token House is responsible for submitting, deliberating, and voting on various types of Optimism Collective proposals. Either directly as an OP holder, or via a delegate. Examples of the types of proposals in the Token House could be: governance fund grants, protocol upgrades, inflation adjustment, director removal, treasury appropriations, rights protection. For example, here is a forum discussion on “Transitioning to On-Chain Voting” back in December 2022 that is openly discussed among OP holders and delegates.
The Citizen’s House on the other hand has both a different voting mechanism, and different powers given to it. The intent of the Citizen’s house is to attempt non-plutocratic governance to avoid power being centralized in the hands of a very small group of large OP Token holders. Currently, the only power that the Citizens’ House has is to be able to vote on retroactive public goods funding rounds to allocate OP tokens to projects that have brought value to the ecosystem. As of right now, the Citizens’ House is seeded by a selected group that was determined by criteria set by the Optimism Foundation and a special election from the Token House.
The OP Collective governance system is designed to be an iterative experiment that will evolve to meet the needs of the community. It is hard to get governance right, and therefore you need open dialogue on how the OP Collective can continue to serve it’s primary function of collective impact and individual profit. There is even a “Working Constitution” that is designed to expire in 4 years and be replaced with a Bedrock Constitution that improves upon the lessons learned.
Optimism Retroactive Public Goods Funding (RetroPGF)
Alright, we touched on this idea of Impact = Profit, but how does this actually happen? Optimism’s primary mechanism to put “profit” into the hands of contributors is through it’s Retroactive Public Goods Funding (RetroPGF) mechanism.
A little background: RetroPGF isn’t a new concept that was created by Optimism, but it was one of the early major ecosystems to use this as it’s mechanism to distribute rewards to contributing citizens. Quadratic funding’s purpose is to find reward outcomes that follow a more logarithmic return than a power law return, where most of the money skews to a few recipients. Quadratic funding also takes into account the number of donations from unique individuals as compared to simply the size of a donation.
Optimism has already run two separate RetroPGF rounds. It’s funded projects like Ethersjs, geth, Ethglobal, hardhat, and many more valuable projects in the Ethereum ecosystem. In round 1 of OP RetroPGF all of the major Optimism winners were technology projects. You can find more about it’s results in a review written by Vitalik himself. Now, in Round 2 Optimism decided to expand the categories a bit to find more non-technical contributions with an emphasis on three categories: Infrastructure, Tooling, and Education. They also decided to up the rewards from $1M USD to 10M OP ($17.4M at current price).
And now, Optimism is getting ready for even an even bigger public goods funding effort with Round 3! This time the funding equals a total of 30M OP (~$50M) that is set to begin sometime Q3/Q4 of this year. They’ve again rethought the categories of where the most value can be created for the OP ecosystem: OP Stack, Collective Governance, Developer Ecosystem, End User Experience & Adoption.
The amazing part about Optimisms’s RetroPGF is not the they are rewarding out so much money, but that is allows for a decentralized way for an ecosystem and community to grow. Through the success of successive rounds they are showing to the world that it is possible to grow a community around a purpose without asking for free labor. This was a well-known problem in the open-source community where it was hard to get contributors to work for free, whereas they could mostly get well-paying jobs elsewhere. This is going to be a model for future ecosystems to come!
What next?
What’s even more fascinating to me is what is going to come next with Optimism: the OP Stack & the Superchain. See you next week 🙂
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About the Author: Tayyab Hussain is a builder in the Web3 space with a passion for economic development and a deep love for Arsenal (the soccer club).
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