What Is Optimism?

Optimism is a Layer 2 scaling solution for Ethereum. It helps reduce the transaction fee and transaction time on the Ethereum blockchain.

Broadly speaking, Optimism helps solve Ethereum’s scalability dilemma. Scalability refers to the rate of transactions per second (TPS) on a blockchain network.

How Optimism Solves Scalability Issues on the Ethereum Network

It's understood that Ethereum is one of the most secure and decentralized blockchains in existence. To keep everything running smoothly, the network is built around three properties: Decentralization, security and scalability. However, because of the limitations due to the blockchain trilemma, Ethereum can only deploy two out of these three properties effectively.

To keep the network functional, the governing body behind Ethereum decided to sacrifice scalability for the sake of security and decentralization. As of this writing, Ethereum has reached its capacity to handle more than one million transactions per day. When this occurs, the Ethereum network cannot scale anymore and will become congested as a result.

Once the blockspace becomes scarce, users on the Ethereum network enter a bidding war in an attempt to get their transactions on the next block. As a result, the gas price rises, making it significantly less affordable for an average user to benefit from a transaction. Besides paying a high gas fee, users on the Ethereum network must also endure long wait times for their transactions to clear.

Optimism to the Rescue

This is where Optimism comes into play. Optimism offers a scalable solution to the Ethereum network, which helps increase the speed of transactions on Ethereum without sacrificing decentralization and security.

Optimism handles transactions off the Ethereum blockchain, while taking advantage of Ethereum's infrastructure. During a transaction, Optimism continues to communicate with Ethereum’s Layer 1 ensuring that it still offers similar security and decentralization guarantees. Layer 1 handles security, decentralization and data availability, while Optimism’s Layer 2 handles scaling.

During the process, no changes are made to Layer 1. In a way, Optimism takes away the burden of financial transactions from Ethereum. The removal of this load from Ethereum’s blockchain removes network congestion.

Here are just a few of the benefits that Optimism crypto offers:

• Scalability: Optimism can achieve a 10–100x improvement in scalability, depending on the nature of the transaction.
• Reduced Fee: Optimism can greatly reduce the overall cost of the transaction. Its rolling technology (discussed in the next section) combines multiple transaction into a single transaction, which helps reduce the transaction cost.
• Security: As Optimism’s Layer 2 builds up on top of Ethereum, transactions are settled on the Ethereum Mainnet, allowing users to benefit from the security and decentralized environment of the Ethereum blockchain.
• Enhanced User Experience: New projects using Optimism Layer 2 scaling solutions benefit from lower fee, faster transactions — and better overall user experience.

How Does Optimism Work?

Optimism uses rollups to process transactions in batches, which helps reduce gas fees and network congestion. Rollups can help users save up to 100 times the gas fee, compared to the Layer 1 protocol.

The rollup technology used by Optimism crypto bundles up hundreds of transactions on Ethereum’s Layer 1 into a single transaction. Since there are multiple transactions in a bundle, the gas fee is distributed among all the users. While the rollup is executed on Optimism’s Layer 2, the transaction data is posted to Ethereum’s Layer 1 for processing.

Optimistic rollups are "optimistic" in the sense that every transaction is assumed to be valid on Optimism’s Layer 2, and no computations are performed. If the system suspects fraud, it runs fraud-proofing to verify the transaction.

Optimistic Rollups vs. ZK-Rollups

There are mainly two types of rollup solutions on Ethereum: Optimistic rollups and ZK-Rollups. While both rollups move the transactions off-chain to process the data, the method used to verify the transactions makes them different.

Optimistic rollups assume that all transactions are valid, so it doesn’t perform heavy calculations on Layer 2. Instead, the rollup moves the batch to Layer 1 without verifying the validity of a transaction, which leads to a significant improvement in scalability.

If anyone suspects a fraudulent transaction, they can challenge the validity of the batch within a week. Optimistic rollups then run a fraud-proof, which verifies information using the data on Layer 1.

On the other end of the spectrum are ZK-Rollups, which are slightly different as they generate a validity proof for every bundle after moving them to Layer 2. The validity proof is then transferred back to Layer 1 serving as a proxy for the corresponding bundle. Since validation occurs on Optimism’s Layer 2, it helps reduce gas prices and validation times at Layer 1.

Each of these technologies has certain benefits and drawbacks. For instance, an Optimistic rollup is preferred for executing smart contracts. In contrast, a ZK-Rollup is an evolving technology that’s mainly relegated to performing simple transactions.

On the downside, the withdrawal period for Optimistic technology is longer than for ZK-Rollups because Optimistic rollups have a "challenge period" to deal with. In contrast, ZK-Rollups have very fast withdrawal times, which makes them an ideal solution for apps which require simple payments.

Stablecoins

What Are Stablecoins?

Stablecoins are cryptocurrencies whose value is pegged, or tied, to that of another currency, commodity, or financial instrument. Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies, including Bitcoin (BTC), which has made crypto investments less suitable for common transactions.

KEY TAKEAWAYS

• Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference.
• Stablecoins are more useful than more-volatile cryptocurrencies as a medium of exchange.
• Stablecoins may be pegged to a currency like the U.S. dollar or to the price of a commodity such as gold.
• Stablecoins pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.
• Stablecoins continue to come under scrutiny by regulators, given the rapid growth of the $153 billion market and its potential to affect the broader financial system.1

Why Are Stablecoins So Important?

Though Bitcoin remains the most popular cryptocurrency, it tends to suffer from high volatility in its price, or exchange rate. For instance, Bitcoin's price rose from just under $5,000 in March 2020 to over $63,000 in April 2021 only to plunge almost 50% over the next two months. Intraday swings also can be wild; the cryptocurrency often moves more than 10% in the span of a few hours.2

All this volatility can be great for traders, but it turns routine transactions like purchases into risky speculation for the buyer and seller. Investors holding cryptocurrencies for long-term appreciation don't want to become famous for paying 10,000 Bitcoins for two pizzas. Meanwhile, most merchants don't want to end up taking a loss if the price of a cryptocurrency plunges after they get paid in it.

To serve as a medium of exchange, a currency that's not legal tender must remain relatively stable, assuring those who accept it that it will retain purchasing power in the short term. Among traditional fiat currencies, daily moves of even 1% in forex trading are relatively rare.

As the name implies, stablecoins aim to address this problem by promising to hold the value of the cryptocurrency steady in a variety of ways. \n

30 cents

The market price of the TerraUSD (UST) algorithmic stablecoin in the early afternoon of May 11, 2022, after it broke its parity peg to the U.S. dollar.

What Kinds of Stablecoins Are There?

Some would argue that stablecoins are a solution in search of a problem given the wide availability and acceptance of the U.S. dollar. Many cryptocurrency adherents, on the other hand, believe the future belongs to digital tender not controlled by central banks. There are three types of stablecoins, based on the mechanism used to stabilize their value.

Fiat-Collateralized Stablecoins

Fiat-collateralized stablecoins maintain a reserve of a fiat currency (or currencies) such as the U.S. dollar, as collateral assuring the stablecoin's value. Other forms of collateral can include precious metals like gold or silver as well as commodities like crude oil, but most fiat-collateralized stablecoins have reserves of U.S. dollars.

Such reserves are maintained by independent custodians and are regularly audited. Tether (USDT) and TrueUSD (TUSD) are popular stablecoins backed by U.S. dollar reserves and denominated at parity to the dollar.

As of late August 2022, Tether (USDT) was the third-largest cryptocurrency by market capitalization, worth more than $67 billion.3

Crypto-Collateralized Stablecoins

Crypto-collateralized stablecoins are backed by other cryptocurrencies. Because the reserve cryptocurrency may also be prone to high volatility, such stablecoins are overcollateralized—that is, the value of cryptocurrency held in reserves exceeds the value of the stablecoins issued.

A cryptocurrency worth $2 million might be held as reserve to issue $1 million in a crypto-backed stablecoin, insuring against a 50% decline in the price of the reserve cryptocurrency. For example, MakerDAO's Dai (DAI) stablecoin is pegged to the U.S. dollar but backed by Ethereum (ETH) and other cryptocurrencies worth 150% of the DAI stablecoin in circulation.4

Algorithmic Stablecoins

Algorithmic stablecoins may or may not hold reserve assets. Their primary distinction is the strategy of keeping the stablecoin's value stable by controlling its supply through an algorithm, essentially a computer program running a preset formula.

In some ways that's not so different from central banks, which also don't rely on a reserve asset to keep the value of the currency they issue stable. The difference is that a central bank like the U.S. Federal Reserve sets monetary policy publicly based on well-understood parameters, and its status as the issuer of legal tender does wonders for the credibility of that policy.

Algorithmic stablecoin issuers can't fall back on such advantages in a crisis. The price of the TerraUSD (UST) algorithmic stablecoin plunged more than 60% on May 11, 2022, vaporizing its peg to the U.S. dollar, as the price of the related Luna token used to peg Terra slumped more than 80% overnight.5

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller directly written into lines of code. The code and the included agreements are stored by a distributed, decentralized blockchain network. The code controls the execution of the agreement, and transactions are trackable and irreversible.

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on the left side you see the bar-chart which is comparing Ethereum to optimism transactions and details and vice versa on the first candle you see the tx account which is 234.662k that means yeah the stat is more than optimism as the user number is 187.906k they do the transactions.adn the avg usd transfered is 9.89207k$ also the median is 163.73. on the other hand number of the transactions from optimism to Ethereum which is 7416 tx which is far less the Ethereum and also users whom doing these TXs are just a few with 4125. the avg and the median are respectedly 149.5619k and 9.81231k you can see the huge space between the two candles….

the transactions in percent you can see the difference clearly with 96.9% of the transactions are Ethereum to optimism in contrary its only 3.06%.also the bar-chart says the same

> now that you have some info about the questions and also have the total stats above. lets dig deeper into it , the maximum bridge volume is 50m noticeably high. the median and the avg volume here is 164.5 and 9.97k which shows a good amount of Ethereum has been bridged between Ethereum and optimism. the bridges volume is 2.31b that means stablecoins and Ethereum volume is trading high. as you guessed the number of bridgers is high as 188k > > and the total number of bridge transactions is 232k which catches your eyes.

> above you see the volume of usd transfered to optimism in ETH,DAI,LUSD,USDC,USDD,USDT we start from the bottom of the chart here as you see the USDD amount that has been transfered so far which is just 0.06389228 after that we see DAI with 9,364.107 and also LUSD with 103.71M which you see we are getting to the exciting part from USDT with 164.0584M and here you see ETHEREUM 863.0133M last but not least 931.1904M which is very huge. people are interested moving between these two networks but on the other side we see that there is 180.56k wallets on Ethereum and the difference here shows itself for USDC 9084 wallets bridged to optimism. and then you can see yourself the other stats of other stablecoins.

> another aspect of this ananlysis is to look at the number of the transactions bridged to optimism due to the stablecoins as you see Ethereum has a huge difference in transactions with the stablecoins with 212.413 tx stands at the top of the hill and next is 12.223 for USDC and 3473 TXs for USDT and about others its not worthy to mention as they are nearly zero. on the right side of the screen we witness the average USD volume bridged to optimism where here LUSD is at the top with 213.3951k and then USDC as it is 76.18346k and after that is USDT with 47.23822k. ETH, DAi and USDD are so less like respectedly are 4,059.195, 1,872.821 and 0.06389228

> Here the users that bridged from optimism to Ethereum are counted in two kind of bars. right bar is more clear which i explain here. as you see different kind of users have been bridged over time in week . which you see here on the jun6 the highest rate of users for Eth is shown with 123 users bridged to optimism on the same day 1 USDS , 4 USDT, 4 DAi and 18 USDC users have been bridged to Ethereum. next day is on dec13 2021 with 104 Eth , 11 USDC, 9 USDT and 10 DAI there is no sign of the remainder stablecoins. the other weeks as you see have ups and downs . but here i mention the least one which is on the oct31 1ETH, 7USDC, 2USDT and 3DAI.

> next we have transferred transactions count weekly. as the same above most transactions are the same as the previous chart on jun6 153Eth transaction happened along side it there is 1SUSD , 41USDC, 4USDT and 16DAI.other weeks we see some are high but not as high as jun6. like Dec13 we see 108Eth, 11USDC, 9USDT and 12 DAI. the least one belongs to Aug9 2021 which shows 1 Eth, 5 USDT and 13 DAI. and the recent transaction is for oct31 2022 which has 19ETH, 24USDC, 2USDT and 14DAI transactions.

> next part we witness the volume of the transferred stablecoins and Eth from optimism. we see that on july12 2021 only 0.0100113 Dai were transferred.as the bar chart shows the highest rate belongs to aug29 2022 with 72.40021M for USDC, 350.2618k SUSD, 4.525376M$ ETH, 8,754.532 USDT and 1.5531 DAI. > > and the recent days oct31 2022 we have 2.568873M USDC, 1.114632M ETH, 2.433976M USDT and 1.788964M DAI.

> the cumulative volume transferred weekly shows different numbers that i will explain more. on the aug30 the last week of august we see 2.401405M USDC,1.379294M ETH 2.401405 USDT and also 2.401405M DAI cumulated volume bridged from optimism to Ethereum and as you see three of them are the same in volume which is interesting .then we skip forward to sep5 week which shows 540.8517M for SUSD, 540.8517M USDC, 201.9446M ETH, 540.8517M USDT and 540.8517M DAI that is noticeable for the market and the part is for oct31 2022 that is 663.7176M USDC, 229.1148M ETH, 663.7176M USDT and 663.7176M DAI which is the same as the USDT again surprisingly .

conclusion:

> to wrap up we realized that there was a good movement between optimism and ETHEREUM over weeks till now . like the transactions we several made and also the volume of them were noticeably high back and forth in numbers . people are more interested in these two networks maybe because ETHEREUM name is involved. you can guess that optimism has a good future due to its good connection with ETHEREUM.