Optimism is a layer 2 scaling solution that operates as a separate blockchain built on top of Ethereum. Although it has a lower total value locked (TVL) than its rivals, Optimism may still have the potential to thrive in the increasingly competitive decentralized finance (DeFi) landscape.
Being one of the pioneers in the DeFi space, Optimism initially gained an edge but faced fierce competition. The project has lagged other scaling solutions in terms of daily transactions for six months. However, at the end of July, the situation changed, as Optimism finally overtook its main competitor, Arbitrum, and showed signs of increasing user demand.
The Rise of Layer 2 Scaling Solutions
The increase in Layer 2 activity on Ethereum has been significant, exceeding mainnet activity by more than four times, according to data from L2beat. Various solutions have emerged to address Ethereum’s scalability challenges, and each layer 2 project focuses on different aspects, such as privacy, specific decentralized applications, and non-fungible token markets.
As a result, the ranking of transactions and volumes constantly fluctuate based on demand, and each solution has its own advantages and disadvantages.
Optimism works using rollups, grouping transactions into a single transaction to be executed on the base layer, inheriting all the security features of Ethereum. The philosophy behind Optimism assumes that all transactions are valid unless disputed and proven otherwise, enabling profitable and fast transactions for users.
While Optimism and Arbitrum rely on aggregations, the main difference is in Arbitrum’s centralized approach, where a single entity (sequencer) is responsible for submitting evidence of fraud. On Optimism, anyone can submit them.
Among Tier 2 competitors, Optimism has been the best performer since July 20, seeing 47% growth in daily transactions. This growth allowed Optimism to outperform competitor Arbitrum in daily transactions for the first time in six months.
Additionally, the Optimism protocol saw an increase in daily active addresses, with an increase of 27.6% in 30 days, while Arbitrum activity decreased by 7.5%.
This trend indicates a potential shift in dominance, although it would be unwise to jump to conclusions prematurely. The main advantage of Arbitrum is its much larger TVL compared to Optimism.
According to DefiLlama, Arbitrum currently holds a significant TVL of $2.35 billion, while Optimism’s TVL is comparatively lower at $920 million. Arbitrum’s dominance is particularly evident in the DeFi apps it shares with Optimism, such as Uniswap and Aave. Additionally, Arbitrum has an impressive $500 million TVL in the GMX derivatives exchange.
Coinbase and Worldcoin Support Recent Increase in Activity Optimism
Two of the main reasons for the increased demand for Optimism are the increased use of Coinbase and Worldcoin (WLD). The project is also on track to implement important privacy mechanisms that could create another use case.
A pivotal moment for Optimism came with the launch of Coinbase’s sandbox on July 21, providing developers with a test environment to build and deploy new applications on this layer 2 solution. This initiative encourages the creation of new tools, applications and protocols, fostering growth and innovation.
One of the projects using Optimism as a scaling solution is Worldcoin, which has attracted considerable attention. The July 26 token airdrop further boosted activity on Optimism after supporting Uniswap on the Optimism mainnet. Worldcoin also has deployed most of its secure wallets on Optimism. This adoption contributed significantly to daily activity on the network, accounting for approximately 40%.
Related: Worldcoin stalled after 70% drop from peak – More downside for WLD price?
New privacy features could benefit Optimism
The Optimism ecosystem is about to undergo several developments, including two proposals from O(1) Labs and RISC Zero to implement zero-knowledge proof systems. This move will provide the network with its own ZK-resistant layers, similar to developments on Polygon (MATIC) and zkSync.
The growth of active addresses on Optimism is a positive indicator of the network’s success, and the successful launch of the Worldcoin project marked a milestone for this scaling solution.
The increase in the number of daily active addresses is also promising, signifying the continued growth of the network and potential opportunities with the successful implementation of its privacy solutions.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.