Understanding different Blockchains and their underlying ecosystem is quiet some work, this is why I’ve dedicated my time to feast your eyes with some deep-drive research on major blockchains and their Defi ecosystem.
Let’s begin…
In this article, I'll discuss:
- Optimism blockchain overview
- Defi Ecosystem overview of Optimism
- A Dex protocol overview (Velodome)
- A lending protocol overview (Sonne)
- Closing (Summary)
Optimism is a layer 2 scaling solution on Ethereum to reduce gas fees and process new transactions faster thereby providing a smoother user experience while maintaining security from the Ethereum original chain.
It’s an optimistic roll-ups project, using a fraud-proof security mechanism.
The roll-up refers to the separation of transactions from the main chain, then wrapping them in a single batch creating proof which is on layer 1.
Optimism constitutes of 3 main components:
- Ethereum mainnet: Layer 1 native security platform
- Optimistic roll-up: The core of optimism scalability
- Optimistic virtual machine (OVM): A virtual machine compatible with Ethereum, making projects work like they are in L1 Ethereum.
The OVM is the environment that allows developers to run their smart contracts in motion with only a few lines of code.
What Makes Optimism Unique
- Transaction experience: with low latency, gas fees are being reduced by 90 times compared to fees on Ethereum currently.
- Scalability: with the use of EVM, Dapps or Ethereum can migrate to optimism with only a few modifications
- Security: The Optimism network still inherits the strict security level of Layer 1 Ethereum.
Defi Ecosystem
The optimism Defi ecosystem has a TVL of $1.07b.
The majority of category protocols that has integration with the Optimism network are decentralized exchange, derivates, option, and indexes.
The top 5 protocols are :
Velodrome, Synthetix, Sonne Finance, AAVE 3, and Beefy.
Let’s explore a few Defi protocols on the Optimism network.
DECENTRALIZED EXCHANGE
Velodrome finance
Velodrome finance at its core is a solution on optimism that is designed to properly monetize liquidity on their own user experience.
Velodrome solves the liquidity problem attached to Defi protocols by presenting an alternative that addresses the core issue idly and adds its improvement.
The improvement in the solid codebase is as follows
- Improvement on the reward emission: by allowing buyers to make only one 'active' voting decision and making sure bribes from fees and external sources are treated differently
- Improvement on the productive gauges: velodrome addresses this issue by adding an 'on-chain gauge to whitelist pairs used in gauges, to ensure that those whitelist gauges are economically aligned. Velodrome can does this by reducing the fees & also by adding an emergency 'commissionaire".
- Improvement on the prolonged emission decay: velodrome address this issue by making a few tweaks on i. modifying the emission growth functionRemoving the negative voting iii. Removing the LP and emission 'boost' for voters
Tokenomics
Velodrome Finance uses two tokens to manage its utility
- $VELO: The ERC-20 utility token of the protocol
- $veVELO: The ERC-721 governance token in the form of NFT (nonfungible token)
$VELO is used for rewarding liquidity providers through emission
$veVELO is used for governance, also any $VELO holder can vote- escrow their token, and receive veVELO also known as veNFT in exchange
Supply (distribution)
* Community 240M ( 60%)
* Protocol 72M (18%)
* Grants 24M (6%) levels
* Team 40M (10%)
* Optimism team 20M (5%)
* Genesis liquidity pool 4M (1%)
Mechanics
Velodrome finance mechanics reflect a combination of two Defi concepts:
- Vote-escrow: which was first introduced by Curve to strengthen incentives for long-term token holders
- Staking/Reading/Bonding or (3,3) game theory designed by Olympus DAOV,3) mechanism rewards thvvvelodromesliquidity provision and (long-term token holders) aallowroviders to receive $VELO emission & $veVELO holders, on the other hand,anddanaandndantendol fees, bribes, rebase, and governance power
-The emission represents liquidity distributed to liquidity pool stakers
- Fees on the protocol represent liquidity pool trading fees distributed to vote in pool token
- Bribes are external rewards added to the whitelist pool and are distributed only to vote on that pool.
LENDING
Sonne
Sonne is an EVM-compatible lending/borrowing protocol that was deployed on optimism. Sonne provides peer-to-peer lending solutions that are fully decentralized, transparent, and non-custodial.
The liquidity money market on Sonne are veETH, USDC, USDT, DAI, OP, and USC
Features
- Liquidation: liquidation is determined by the borrowing collateral factors (which are sed to determine the initial borrowing capacity)
- Reserve: Sonne implements the collateral and reserve mechanism implemented by compound finance
Tokenomics
Reserve + Bribes 60,000,000
Protocol Growth 19, 000, 000
Core team 12, 000,000
LGE participants 3, 500, 000
Community airdrop 3, 000, 000
Initial liquidity 2, 500, 000
Demand
- The Sonne token will be used as a reward to users who lend and borrow tokens in the protocol.
Closing (Summary)
Optimism a layer 2 blockchain, plays a vital role in the adoption of blockchain technology. Narrowing it to the aspect of Defi, it makes the interface of most Defi protocol easy to interact with and use for most Defi operations like trade, swap, borrowing & lending and many more.
A close attention to the data provided by Defillama shows that optimism Defi ecosystem has more of decentralized exchange protocol built on it, which is followed closely by lending protocol and other categories.
