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Optimism is a top Layer-2 scaling solution for Ethereum that uses a special technique known as “optimistic rollup.’’ The optimistic rollup helps make the Ethereum network faster and less expensive.
Ethereum is at the top of the table in the decentralized finance (DeFi) sector. It accounts for 60% of the Total Value Locked (TVL) in the sector. Despite Ethereum’s achievements and its recent transition to a proof-of-stake (PoS) consensus method, there is still room for improvement.
What is Optimism?
Optimism is among the fastest-growing Layer-2 networks, and its main objectives are to achieve speed and a lower transaction fee for the Ethereum network. Polygon and Arbitrum are also Layer-2 protocols that can effectively compete with Optimism because they are larger in terms of Total Value Locked (TVL). However, Optimism is showing progressive revenue growth and can use this to effectively compete with Arbitrum.
The basic technique of the Optimism protocol is the “optimistic rollups.” The technology gathers numerous transactions into bundles, which facilitates effective and speedy processing. The reduction in time needed to process data eventually results in a reduction in cost. This strategy has encouraged its expansion to about $1 billion in TVL.
Optimism supports various DeFi wallets, and more projects can be developed on top of it. At the time of writing, OP has a market cap of over $660 million, while the blockchain is home to over 100 applications for decentralized finance (DeFi), each of which offers its own unique investment potential.
Some of the Top Protocols Built on Optimism
Uniswap v3
The first version of Uniswap was launched in 2018. It makes use of the Automated Market Maker (AMM) model. Then, in 2021, version 3 was launched on the Ethereum mainnet. It was later deployed on the Optimism network. Uniswap allows liquidity providers to have more control over allocated capital.
The latest Uniswap version 3 offers up to 4,000 times better capital efficiency than version 2. This huge improvement results in higher returns and lower slippage. Additionally, the oracles in version 3 offer time-weighted average pricing (TWAPs) for better integration. While Optimism deployment dramatically lowers costs, Uniswap v3’s Ethereum swaps are slightly more affordable than v2 thanks to its advanced capabilities.
Aave v3
Aave is a non-custodial, decentralized lending protocol that enables users to lend, buy, or sell assets. The protocol’s third iteration adds unique features, improves yield production, and increases borrowing power. By facilitating cross-network liquidity flow, the Portal functionality enables authorized bridges to transfer assets between Aave v3 markets.
With the ‘Efficiency Mode’ features on the Aave network, the borrowing power is optimized. Also, with “Isolation Mode,” new assets may be listed, and the collateral may only consist of one item. To reduce the risk to the protocol’s solvency, “Siloed Borrowing” permits potentially manipulatable oracles (such as illiquid Uniswap v3 pairs) to be borrowed independently.
Stargate Finance
Stargate Finance is a LayerZero, cross-chain solution that facilitates the easy trade of tokens between different blockchains such as Ethereum, Polygon, Arbitrum, Avalanche, and others.
With the infrastructure provided by LayerZero, Stargate Finance establishes liquidity pools that offer mouth-watering interest rates. The platform also addresses the issue of cross-blockchain bridge security concerns by using cross-verification technology between LayerZero and Oracle. It also uses omni-chain tokens rather than wrap-token methods to ensure high levels of security.
This platform offers 1:1 native asset cross-chain swaps; it makes the unification of liquidity pools possible, and because of this, investors can earn stablecoin rewards.
Synthetix
This is mainly a decentralized finance protocol based on the Ethereum network and the Optimism network. It allows users to create and exchange synthetic assets that resemble physical and digital assets without the use of middlemen. Synthetix may create synthetic assets (synths), such as sUSD and sBTC, that track the values of USD and bitcoin, respectively, by using its native token (SNX) as collateral and smart contracts.
Synthetix ensures precise tracking; the protocol uses decentralized price oracles to do this. It also provides exposure to a number of asset types, including commodities, fiat money, and indices. In order to address the liquidity and slippage difficulties that are typical in DEXs, Synthetix acts as a backend liquidity provider for user-facing DeFi apps.
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