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Optimism, one of the major layer-2 networks, has managed to get a slew of clients and firms to deploy their own blockchains using its technology, known as the OP Stack.
Part of the strategy to get new networks to use the technology is to give out large sums of OP tokens in the form of grants. Officials within the Optimism ecosystem say those tokens are supposed to help different projects kickstart their building on OP Stack.
Some argue within the ecosystem it's too early to conclude whether OP Stack has won the layer-2 race.
One of the biggest trends of 2023 among the leading layer-2 projects on Ethereum was the emergence of “blockchain in a box,” where the teams encouraged developers to clone their code to spin up new layer 2s.
Now, one project in particular appears to be pulling away as the clear leader. And as is often the case in blockchain development, a crucial factor is the money changing hands behind the scenes.
Optimism, one of the major layer-2 networks, has managed to get a slew of clients and firms to deploy their own blockchains using Optimism’s technology, with the OP Stack, under open-source software licenses.
Optimism’s first major client to come out of OP Stack was Coinbase’s Base — last year. But in recent months, additional projects have broken toward the ecosystem, with Uniswap, Sony and Kraken all sharing plans to deploy new layer-2 networks using the OP Stack.
It's a crucial development in the evolution of the broader blockchain universe, since layer-2 networks stand at the heart of developers' efforts to make transactions faster and cheaper in the Ethereum ecosystem. Ethereum, while the second-largest blockchain after Bitcoin, is currently the leading smart-contracts network — meaning it can handle programs and support applications — and it has become the dominant home for decentralized exchanges and lending platforms. Layer-2 blockchains work like auxiliary networks atop Ethereum, providing a venue for transactions to be executed quickly and at a low cost, and then settled down to the base chain.
Part of the Optimism Foundation's strategy to get new networks to use their technology is to give out large sums of OP tokens in the form of grants. Officials within the Optimism ecosystem claim that those tokens are supposed to help different projects kickstart their building on OP Stack while contributing to Optimism’s Superchain, a network of OP chains that are connected amongst each other, as well as to Optimism’s governance system, which is known as the Collective.
Ultimately, the goal is to reach critical mass — perhaps not unlike the ascendance in the 1980s of VHS over Betamax as the dominant videotape technology.
Kraken's OP token grant
The deal with Kraken came with a sizable grant, which included an allocation of 25 million OP tokens, worth about $42.5 million when CoinDesk broke the news recently. Kraken's network is called “Ink.”
Representatives for World (the recently renamed Worldcoin project), Uniswap and Sony all declined to comment on how many tokens their projects received as part of their packages, but according to Kraken’s Andrew Koller, the creator of Ink, other OP Stack participants also got sizable amounts.
Optimism Foundation officials say they leave it up to the projects to disclose the amounts of their grants.
In an industry that prides itself on transparency, the unwillingness to share how many OP tokens are designated to those chains raises some questions on how big of a factor those grants played into those deals.
A spokesperson with the Optimism Foundation shared with CoinDesk that the Optimism ecosystem has been transparent about their treasury, and that the Kraken deal falls under their “partnerships fund,” which goes “to certain projects to help support initial development of the chain.”
Optimism's Treasury and Grant Breakdown
According to the data as of Sept. 30, there are about 841 million OP tokens designated towards that kind of funding, with just under 480 million OP tokens already committed. That works out to 361 million remaining, or nearly $480 million at the current OP token price of $1.32.
Some smaller projects building layer 2s on the OP Stack have also received tokens. Celo’s governance forum previously disclosed that it would receive up to 6.5 million OP tokens for building on OP Stack, and the Bitcoin-focused BOB project shared that it was still in the negotiating process, but at the time of writing the deal was for about 500,000 OP tokens.
The tokens designated to BOB come from a different grant bucket, called Retroactive Public Goods Funding (RPGF), which is distributed through Optimism’s DAO, not the Foundation. The Grants Council, which is part of the DAO, is in charge of distributing those tokens, which takes place over cycles.
As of Sept. 30, there’s just shy of 860 million OP tokens under the RPGF bucket, “which goes towards rewarding on-chain impact across Optimism, and the Superchain,” according to a spokesperson at the Optimism Foundation. Projects like Kraken’s Ink will also be eligible for RPGF funding.
So has Optimism ultimately won the layer-2 race, and does their grant strategy play into it?
The spokesperson at the Optimism Foundation told CoinDesk over email that, “Like many ecosystems in the space, we view grants as ways to support projects and developers, and allocations are earned by achieving agreed-upon growth milestones that are ROI-positive for the whole Collective. We’re all working together to scale the future of Ethereum and when teams in the Superchain are successful, it benefits the entire Ethereum community.” ROI stands for return on investment.
Has OP Stack Won The Layer-2 Race?
Optimism Foundation’s chief growth officer, Ryan Wyatt, told CoinDesk in an interview that “the adoption of OP Stack being the de facto choice for scaling L2s is starting to happen, which is exciting. Whether you want to call that winning or whatever, I don't know.”
The OP token price has fallen a staggering 65% this year, based on pricing from the website DigitalCoinPrice. But that's less than the declines for other major layer-2 tokens, such as Polygon's MATIC, down 70% in 2024, and Arbitrum's ARB, which has slid 72%. Etherum's native cryptocurrency, ETH, is up about 6% year-to-date.
Wyatt added: “Whether we're at a point where it's just a fact that if you're going to launch an L2, you're going to just go with OP Stack, I think it's too early to say. But if any large institutions, companies, are coming into this space, and they want to be an L2, I think you start orienting more like, ‘Why would we not choose the OP Stack?’”
Competitors, like Offchain Labs, the main developer firm behind layer-2 Arbitrum, have taken a different approach in trying to get users to build with its technology.
“There's a strategy that prioritizes announcements, and there's a strategy that prioritizes actually on-chain success and metrics,” Steven Goldfeder, CEO of Offchain Labs, said to CoinDesk “Our strategy is to empower real users and real builders, and build real technology that's empowering new interesting as well as established different use cases of technology.”
As for Kraken’s Ink decision to pick OP Stack, Koller told CoinDesk that the reasoning came down to “what is going to allow me to spend the resources of engineering the most effectively," he said.
"Do I want to worry too much about security and the protocol upgrades, and having to manage that myself, or do I want to be able to use resources effectively and just make good UX, good tooling, and bring our clients on-chain and make the applications?" Koller said. "That's really what we cared about.”
He added: “Let's just focus on experience so we don't have to worry about the complexities of running a blockchain. I think that's why Optimism was a clear choice.”
Read more: Kraken Picked Optimism's 'Superchain' After Getting a Pile of OP Tokens