A year and a half ago, I wrote about why I was excited about Avalanche as the AWS of Web3:
What AWS does for web2, Avalanche does for web3… Avalanche provides lower level “commoditized” blockchain infrastructure (consensus, networking, and security) by default so that developers can focus on what makes their projects special.
This idea of composability, while not unique to web3, is powerful because it enables people to build on top of others’ work and rapidly accelerates innovation.
I was wrong about Avalanche (as far as I can tell), but the underlying principle of abstracting away commoditized infrastructure for developers is 1) not new 2) still valid.
Layer 2s & Rollups
A year and a half later, I’m back with the same thesis, except this time we’re focusing on Optimism. Optimism is a Layer 2 Blockchain.
Layer 2 (L2) blockchains help scale Ethereum (Layer 1), which can only process 15 transactions per second. There are many types of L2s, but the most common are rollups. Rollups execute transactions outside of the L1 and post compressed versions of the results to the L1.
Rollups themselves have a two main types: Optimistic and Zero Knowledge. Optimism is an optimistic rollup, meaning that it assumes transactions are valid unless someone proves otherwise. ZK rollups proactively prove that transactions are valid.
The OP Stack
In addition to the actual L2 itself, the Optimism team is building the OP Stack: the standardized, shared, and open-source development stack that powers Optimism.
The OP Stack makes it simple to deploy your own Optimistic Rollup. If this sounds similar in theory to what Avalanche offers with their P-chain, you’re not wrong.
However, the OP Stack gets all the attention these days, not the P-chain – why is that? There are a few reasons:
OP Settles on Ethereum. Ethereum is the clear winner for developer activity, monetary value, and cultural significance. Building on top of any other chain, except for maybe Solana, automatically puts you at a disadvantage when attracting users.
Developer Friendly. Optimism’s website and Github are comprehensive and clear. When you’re creating an L2 using the OP Stack, you can easily customize its parameters. This process is further accelerated by startups like Conduit which makes deploying with the OP Stack as easy as a few clicks.
Bonus: The Optimism team also gives retroactive funding to developers that previously contributed to their open source implementation of the OP Stack. This is the first time I’ve heard of this concept and is guaranteed to attract more builders over time.
Partnerships. Coinbase’s new L2, Base, is built on the OP Stack. Having the most recognizable brand in crypto build on the OP Stack is a huge boost for trust and legitimacy. Also, alt-L1s like Celo and BNB are switching to the OP Stack. Developers are realizing it’s easier to convince users to move assets to an L2 from Ethereum rather than to an entirely different L1.
The Superchain Vision. Optimism plans to enable communication between OP Stack L2s, reducing friction and increasing liquidity in the ecosystem. For example, it will be easy to move funds between games or social apps deployed on different OP Stack L2s.
It’s clear the OP Stack is set up for success. However, it’s also important to discuss some of its drawbacks.
Poor Txn Finality. It takes seven days for transactions to be finalized on an optimistic rollup, which can be frustrating for users. On the other hand, Zero Knowledge Rollups finalize much quicker. The extent to which this delay will influence end users is still unknown.
Spiking Txn Fees. One of the main reasons to use an L2 is reduced gas costs. However, fees on an Optimistic Rollup can still spike high enough to stop people from using the blockchain. There are improvements in flight, like EIP 4844, which is predicted to reduce fees by up to 20x.
Lack of Sequencer Decentralization. The sequencer is in charge of organizing the transactions that are sent back to the L1. Currently, Optimism has a single sequencer, which carries censorship and reliability risk. This single sequencer can arbitrarily choose to exclude transactions and is a single point of failure (this happened to Arbitrum, a competing optimistic rollup). Optimism has plans to include more sequencers over time.
Competition. The OP Stack is the popular choice these days, as shown by their recent partnership wins. However, Arbitrum, a competing optimistic rollup, is starting to catch up.
Of these four, I’m most concerned about the transaction finality time. If crypto moves to a truly multi-chain world, waiting seven days for transactions to finalize could be impractical.
Conclusion
Despite the drawbacks, I’m excited about the OP Stack and what’s being built on top of it. With just a few clicks, developers can spin up their own secure, scalable, and interoperable L2 blockchain for their use case. Just like AWS powers the tech giants of today, the OP Stack will power the crypto ecosystem of the future.
Do you agree?
Special thanks to Anthony from Coinbase for his help.