What is Optimism?

Optimism is a side chain that allows Ethereum to run faster. It is a layer 2, similar to Polygon, that runs along the side of Ethereum. It can support all the same Dapps, and is perfectly compatible with each Dapp on the Ethereum network. Optimism reports that as of a year ago, they have saved users $10 million in gas fees across 100,000+ individual transactions

How does it work?

The Optimism side chain allows multiple transactions to be put in a singular block on the Ethereum network. Optimism is considered a rollup- a rollup is where a layer 2 takes transactions that would typically be put directly to the main chain, and writes them to its own series of blocks. The optimistic rollup is said to take an entire week to upload their block to the Ethereum mainnet. A week is a long time for a block to be sitting in purgatory, but the rollup claims to handle a greater amount of transactions per second than the mainnet, which will increase speeds and lower transaction costs.

The graph above depicts the daily transaction count as it compares to the price of Ethereum in the month of July

• The graph above shows that as Optimism transaction volume increases, so does the the price of Ethereum
• This makes sense, as an increase in optimism tx volume is also an increase in ethereum volume, but it is still less volume than would ordinarily be passing through the Ethereum network
  • This is because of Optimisms rollup approach to scaling the efficiency of the Ethereum network
  • As more blocks are added to the layer 2, they are compiled into a single block on Ethereum
• Throughout the month of July, both the transaction count of Optimism and the price of Ethereum increased consistently throughout the month
• The price of Ethereum contained the initial spike, then the notable spike in optimism activity followed shortly thereafter

The graph above shows the token transfer volume of Arbitrum, Optimism, and Ethereum

• Although Ethereum dominates the total token transfer volume from early July through mid July, the narrative changes in the back half of the month
  • The first day that Optimism has more token transfer volume than Ethereum isn’t until July 28th, but the two run near parallel for the week leading up to that point
• July 29th, Optimism has close to 3x the amount of token transfer volume compared to Ethereum
• Optimism over took Ethereum in terms of token transfer volume on the 28th, and remained ahead of Ethereum for the remainder of the month
  • The seemingly out-of-no-where spike is difficult to analyze because the analysis only runs throughout the month of July
• Arbitrum is seemingly out of the race- but is making progress towards catching up to Ethereum

The graph above shows the price of Optimism vs. Ethereum

• The daily average price of optimism and Ethereum run in almost perfect harmony

• This makes sense, as the success of optimism is almost directly correlated to the success of Ethereum

• The prices sky rocketed twice in the month of July

  • July 13th, and July 26th
    • These also correlate closely with the price charts of bitcoin, suggesting that the markets move in close proximity

• Based on the tight correlation, it can be implied that there is a high co-dependence

  • However, after further research, it is far more likely that the optimism price is entirely dependent on Ethereum- without Ethereum, the rollup might as well not exist

The graph above shows the connection between the price of Optimism and the actual transactions per second

• As assumed, there is a tight correlation between the price of optimism and how it relates to the actual transactions per second
• This is because the price of the coin is tied to the number of transactions passing through the network, as the token is required to add an additional block to the chain
• There is a notable spike in both price and speed toward the end of July when the transaction speeds and price of the token are more than 3x ing

Conclusions

Optimism is a fantastic tool that is part of the tool pack as it relates to the Ethereum network. Rollups, whether it’s optimistic or Arbitrum, are a great way to increase the usability of an otherwise slow network. Some of the downsides are the long wait times when it comes to actually adding the block to the Ethereum mainnet chain. It takes up to a week for the Optimism block to make it to the mainnet, while if you post it directly to the Ethereum blockchain, it will typically be posted in a matter of minutes.

• The price of ethereum and Optimism are very closely correlated- and this makes a lot of sense. Because Optimism is so dependent on Ethereum for its survivial, as one increases the other one will be likely to tag along
• One thing I thought was interesting was the reported vs. actual transaction speed of Optimism vs. Ethereum
  • Although Ethereum boasts transaction speed of 15 per second, more realistically it only operates at 5-10 per second. Optimism doesn’t report their speed, but in the month of July it not only caught up to Ethereum, but surpassed it. It is only a matter of time before it really goes faster
  • Arbitrum was significantly slower and less valuable compared to Optimism. This isn’t much of a surprise, but it was still worth throwing in the dashboard

Overall, rollups are a necessity for the Ethereum network to operate. Rollups increase the overall speed of the network, as Ethereum just isn’t as fast as some of its competitors, such as Algorand or Solana. Polygon was supposed to be one of the first layer 2s, but turned into more of its own blockchain. While still useful, Ethereum still does need layer 2s if it wants to compete with some of the higher speed blockchains.

The graph above shows the actual transactions per second of Ethereum vs. Optimism

• Although Ethereum and Optimism report various transaction speeds- much of whats reported is never actually true
• The best example is with Ethereum; the more prominent and reliable blockchain
  • Ethereum reports a total of 15 transactions per second- but in practice is only handling 5-10
• Optimum is a smaller chain and has yet to put a number on their transaction speed
  • But regardless, it is still faster than Ethereum
• Although Ethereum had a higher TPS than Optimism for the first half the month, it was quickly over taken by Optimism
• The higher transaction speeds led to the a higher TPS, which makes sense