Learn Crypto
Market Research
Market Analysis
Market Notes
Ratings Guide
Join Community
Help
In 2022, Layer 2s took the crypto world by storm. Layer 2s are applications built on top of blockchains like Ethereum to improve their efficiency.
Two front runners in the Ethereum ecosystem, Arbitrum, and Optimism, are locked in a heated race for first place. Now, in 2023, the race is on, with all competitors shifting gears. Arbitrum is firmly in the lead, but can Optimism’s upcoming upgrade secure its victory?
Let’s find out!
TLDR: Don’t be Lazy, Read On!
- Arbitrum is dominating the Layer 2 space with a whopping $1.86 billion locked and a 68% market share, all thanks to its Nitro upgrade. Contrast this with Optimism’s $775 Million locked and 28% market share.
- Optimism is rallying back with a game-changing upgrade of its own: Bedrock which is set to level the playing field.
- The Optimism Bedrock upgrade may be positive, but there’s a catch that could affect the $OP token price.
- Will Cryptonary be investing in $OP? No, the tokenomics just don’t make sense, not to mention the upcoming airdrop that will likely crash the price.
Disclaimer: Not Financial nor Investment Advice. Any capital-related decisions you make are your full responsibility and yours only.
Arbitrum VS Optimism
Both Arbitrum and Optimism are Layer 2 networks focusing on the optimisation of the Ethereum blockchain. They’re both well-known and gained huge traction in 2022. This was mainly due to how useful Layer 2s are. Ethereum was plagued with expensive and slow transaction speeds, and these Layer 2s resolve these issues
Let’s take a look at the tale of the tape.
With $1.86 billion locked and a 68% market share, Arbitrum is sitting comfortably in first place. What’s even more impressive is that Arbitrum is yet to launch a token or incentive programme. Crazy right?
In second place, we have Optimism. When it first hit the Ethereum Mainnet in January 2021, it was the first of its kind. With $775 million locked and a 28% market share, Optimism is no slouch.
So what’s keeping Arbitrum in the lead?
The Arbitrum Nitro Upgrade
Throughout its life cycle, Arbitrum struggled with scalability issues due to being such a new product, but in August 2022, the Nitro upgrade launched and steadied Abitrum’s path. Just like its namesake, Nitro simply made Arbitrum too fast for the competition.
Arbitrum now holds a dominant lead in market share and has consistently stayed ahead of the pack. That said, don’t count Optimism out just yet. It has a secret weapon up its sleeve which is certainly going to make things interesting…
Bedrock: The Game Changer
This quarter, Optimism is releasing an upgrade called “Optimism Bedrock” with the hope of taking the lead in the Layer 2 race.
Bedrock is set to make Optimism the cheapest Layer 2 on Ethereum and reduce deposit time by 75%! The platform has already been tested on the Goerli network (sub-chain on Ethereum) and is primed to continue full speed ahead in 2023 (expected completion in late quarter one).
Bedrock’s three key developments:
Evolving from Optimistic to ZK Rollups
Optimism is what’s known as an ‘optimistic roll-up.’ However, Ethereum Founder, Vitalik Buterin has said that ‘zk-rollups’ (zero knowledge rollups) are the future for Layer 2s. The Bedrock upgrade will allow Optimism to easily transition to zk technology. With zero-knowledge rollups, transactions are recorded to the blockchain ledger faster than with optimistic rollups. And thanks to their design, ZK rollups are also more secure.
Let’s use an analogy to explain…
Right now, Optimism is like a car dealer specialising in gasoline-powered cars. The Optimism crew have studied the space and recognised that the future of the industry is not gasoline cars, but instead electric cars. So, they’ve decided to shift gears and start making cars that can also run on electricity.
Bedrock is basically an upgrade that will allow Optimism cars to run on electricity.
In theory, this should give Optimism the boost it needs to speed into first place.
But wait, there’s a problem…
The Big Problem
Here’s the issue. The Optimism token, $OP has no intrinsic value (Most tokens allow investors to have a claim on their revenue or their treasury. $OP doesn’t offer this.) Don’t even get us started on the tokenomics, there are serious red flags.
In October 2022, Optimism introduced “Optimism Quests”. The purpose of the Quests was to encourage users to try out the platform, in return, they’d be eligible for airdrop rewards. These quests ended on January 17th, and the airdrop is expected at some point in 2023.
Although great for those receiving the airdrops: the $OP airdrop rewards are set for 14% of the total supply. That’s nothing to scoff at, and we don’t believe the market will be able to absorb all of that.
As basic economics tells us, if supply goes up, and demand doesn’t change, price goes down! One could argue that the Optimism Bedrock upgrade is a big enough catalyst for increased demand, but there are no guarantees.
Cryptonary’s Take
So, will we be buying $OP? No.
The Optimism Bedrock upgrade is undoubtedly a significant move forward for the Optimism protocol and the Ethereum ecosystem as a whole. However, the tokenomics of $OP just don’t hold up.
The token supply is highly inflationary, rewards and investor unlocks are inbound, and there’s no certainty the upgrade will cause demand to rise in line with supply.
That said. We are grateful to Optimism for their work. We are fans, and they are doing a great service to the Ethereum ecosystem, DeFi, and crypto as a whole, but as of today, we will not be buying.
Arbitrum is a great project also, but with no token, there is no way to invest. We do, however, recommend using the platform as there may be an airdrop inbound for early users!
There are also still many opportunities in this layer 2 space! Here’s how to take hold of them…
Action Points
- Check out our latest piece covering a DeFi project built on Optimism. We called for a 20X in 2021. Two years in, check out our update to see how it’s doing
- While you may have missed the Optimism airdrop, there are still plenty of airdrop opportunities for projects built on top of Layer 2s. Click here for details on how to get involved.
- This year, there’s a massive update coming to Ethereum, which will have an influence on both Arbitrum and Optimism. Click here for details.
Thanks for reading! Please let us know your thoughts on Discord, and have a great day!
Post a Comment