Diving into Optimism’s TVL & the OP Token Price
Overview
On April 26th the Optimism foundation introduced the Optimism Collective, with it the announcement of their token distribution. Optimism’s governance token, OP, will have a first airdrop consisting of 5% of the total supply, and will be then followed by future airdrops of an additional 14% of the supply. It is estimated that between the first airdrop, Ecosystem Fund and Retroactive Public Good Funding around 32.5% of the total supply will be available to the market with the token release to the public. This article seeks to analyze the possible future of Optimism’s network and its valuation amid the release price of the OP token, taking into consideration Optimism’s current total value locked (TVL), fees generated and daily network transactions.
Optimism’s current TVL sits at $492.8 millions. With the OP token expected to be claimable in Q2 2022, over 250K addresses will be eligible to redeem tokens of the first airdrop. This activity plus the incentives campaign’s main target will be to attract liquidity and propel the network’s TVL into new highs.
Optimism TVL Estimates
Boba Network and Metis Andromeda are two competing universal Ethereum layer 2 chains which use optimistic rollup technology. Both layer 2 chains have already launched their governance tokens and as an effect received a significant increase in their TVL.
As noticed in the graph above, Boba Networks launched their governance token, Boba, via an airdrop to the OMG token holders which was decided on a snapshot that took place November 12, 2021. Since then Boba’s TVL increased 1,070% to what currently is $59.2 million. A similar story happened with Metis Andromeda when they managed to bootstrapped liquidity on the chain with the launch of their DAC (Decentralized Autonomous Corporation) high staking APY’s, their TVL increased 9900% to today’s $164.7 millions.
Taking these two different scenarios as an example for Optimism’s possible TVL effect after the OP token is launched, puts the chain TVL between $5.6 billion in Boba’s case and $52.3 billion on Metis’ situation. It’s important to state the fact that both of these chains had very low liquidity numbers before managing bootstrapping liquidity, making substantial percentage numbers increase.
Similar scenarios happened with EVM sidechains. Their main difference was that since their tokens were already live due to validation purposes, the way for sidechains to bootstrap liquidity was through the offer of liquidity mining incentives campaigns. On the chart below a historical comparison can be seen between the top 3 Ethereum sidechains.
Despite their similarities, sidechains and layer 2s are not apples to apples. Due to the lack of historical data on token airdrops and incentives campaigns on the layer 2 ecosystems, its comparisons bring meaningful and relevant data. In this case Polygon, Fantom and Avalanche managed to increase their TVL from the start of their incentives program to its current one in 2,762%, 629% and 6,402% respectively. Using these numbers to represent the different scenarios in Optimism’s case, puts the TVL at $14.5 billion for Polygon, $3.3 billion for Fantom and $33.6 billion for Avalanche. Again, these projections likely overestimate the growth Optimism will experience following the release of OP as it already has significantly higher TVL than these networks, but serves as an idea of the potential growth to come.
OP Token Estimates
There are several ways in which one can arrive at the estimation of a token price before its public release. These ratios are assumptions based on similar chains. A relevant approach to assess the OP valuation is through Market Capitalization/TVL ratio.
The Market Cap/ TVL ratio takes the circulating supply of a token times its price and divides it by the current TVL. The chart above has the historical ratios of the Polygon, Avalanche and Fantom sidechains and the Boba and Metis Layer 2 solutions. In theory the lower this ratio the more under value the token is, hence it means that there is more economic activity in the chain and more value is being deposited into its dApps relative to its valuation.
Based on the percentage of circulating supply of tokens in each chain we used the according ratio, to take out an estimation of the OP token price. The estimation for the token price using sidechains ratios was $0.33 for Polygon, $0.41 for Avalanche and $0.08 for Fantom. For the layer 2 solutions, the estimate seems to be more accurate because their circulating supply is closer to the one Optimism announced. Their numbers were $1.17 for Boba and $0.45 for Metis. This would provide a fully diluted valuation estimated for the OP token of between $325 millions and $5 billions.
Conclusion
Currently Optimism ranks third by TVL in the layer 2 chains ecosystem. The release of the Optimism Collective signals future growth for the layer 2 solutions ecosystem. Optimism’s TVL and OP token prices taken above are just estimates and this could be affected by several other factors not accounted for in the calculations. Overall, the release of the OP token and the prospect of future airdrops and incentives are likely to grow the network’s activity and along with it its valuation.
