I don’t know about you – but I’m always happy to see a new, high-profile crypto launch that has nothing to do with a Shiba Inu, ape, or goblin. And that’s just what we got this week from Optimism (OP-USD), now available on Binance and Coinbase as well as decentralized exchanges (DEXs) like Uniswap.
Optimism is one of the top “Layer 2” scalability solutions for Ethereum (ETH-USD). And its OP crypto hit the scene this week as an “airdrop,” primarily for its users and for “Active Ethereum Participants.” For example, if you’re active in a decentralized autonomous organization (DAO), or if you like Ethereum apps – but find yourself “bridging to other chains due to high fees” to use them – then you could claim a certain number of OP tokens.
Optimism’s airdrop didn’t go entirely smoothly. “Panicked users complained that some claimants were able to claim their tokens [before] Optimism officially tweeted about the launch” on Tuesday evening, as CoinDesk describes…
Then the price promptly fell from $4.50 to more like $1.30 after a lot of recipients immediately sold their OP crypto. I don’t blame anyone for wanting to make a quick buck – when those have been hard to come by in this painful bear market. But selling your OP airdrop is not unlike selling a hot new IPO stock. They often trade poorly right out of the gate…but some of them go on to total world dominance!
So, if we want to compare Optimism crypto to an IPO stock… Is it going to turn out like Facebook (NASDAQ:FB) in the 2010s – or Pets.com in the 2000s?
Well, unlike that dot-com disaster, Optimism brings in some serious revenues:
When you compare transaction fees paid to the different blockchains, Optimism is making roughly twice its nearest Layer 2 competitor, Arbitrum. And as for the “Layer 1” alternatives to Ethereum… Optimism’s getting more transaction revenue than Avalanche (AVAX-USD), Polygon (MATIC-USD), Cardano (ADA-USD), Fantom (FTM-USD), and NEAR Protocol (NEAR-USD)…combined!
On the other hand, it’s not clear what kind of investment these Layer 2s will make. As Blockworks’ Byron Gilliam puts it, they’re “a kind of WeWork, but for blockspace instead of office space: They buy Ethereum blocks in bulk and then resell them in smaller increments. That is certainly useful in that they scale L1s, but it’s not clear to me how they will accrue value or why they’d have a token.
“Maybe they can take a spread reselling L1 blockspace, but if it’s anything more than a razor-thin one, some other L2 will presumably offer the same service cheaper,” Gilliam notes. “It may be that L2s turn out to be commodities (and not the scarce kind).”
For what it’s worth, Optimism does have a major crypto celebrity in its corner: Vitalik Buterin of Ethereum itself. “Optimism explicitly has goals *other* than just ‘make OP go up,’ and the only way to do that long-term is with explicit representation of non-token-holder interests,” he tweeted yesterday.
In other words, Vitalik is a fan of Optimism’s “two-house governance structure.”
Governance, you might say, is like being a security guard or a night nanny: It’s boring…until it’s not. Just look at Terra (LUNA-USD). New rumors and allegations are swirling around its founder and self-proclaimed “master of stablecoin,” Do Kwon, every day. What better wake-up call to the importance of governance!
And at Optimism, OP tokenholders and Optimism’s “citizens” will oversee the project together. “The duo share governance decisions on network parameters and granting new citizenships,” reports Cointelegraph.
While anyone can buy and trade the OP token, citizenship will be non-transferrable…represented by the “soulbound NFTs” that Vitalik Buterin himself has proposed.
So, with tokenholders and citizens holding power at Optimism, it should run more democratically. In a lot of crypto projects, a small cabal of founders and investors end up calling all the shots…because they hold the most tokens! But in Optimism’s “Citizen House” of government, it’ll be more like showing up with your voter registration card to an election: One person, one vote.
It’s certainly comforting to think that governance can stop being the forgotten “G” in ESG…start being taken seriously…and hopefully we can all avoid another Terra/Luna disaster.
But governance is just one factor in evaluating Optimism crypto for investment – as Messari analysts did in their early May report, “The Value of Optimism.” Long story short, it will “kickstart a new era for Ethereum scaling solutions,” and “per our valuation model, Optimism should be a top 20 crypto asset at launch with a market cap of ~$9 billion.”
If we use $9 billion as fair-value here, then OP crypto has plenty of room to run. At current prices around $1.30, taken with Optimism’s stated supply of 4.3 billion tokens, we’d put OP’s market cap at $5.6 billion today.
Of course, what remains to be seen is how bumpy the ride will be for OP crypto along the way! And in a bear market like this one, “bumpy” is putting it mildly:
Fears that the Federal Reserve will keep raising rates – punishing growth investments in the process – are keeping a lid on everything today… But yesterday was a very strong trading day – for stocks, anyway.
Look at how crypto traded versus a comparable group of growth stocks, like Cathie Wood’s ARK Innovation ETF (NYSEARCA:ARKK). While ARKK gained +7.4% on Thursday, a lot of the crypto majors were lucky to see +1% or +2%.
This is the kind of thing we’ve been monitoring closely here at InvestorPlace: We want to see the gap close before we become passionate buyers in our Crypto Investor Network portfolio again.
“While we remain very bullish on the long-term potential of cryptos, we continue to believe things in the crypto markets will get worse before they get better, and therefore, we continue to emphasize patience and selectivity in these markets,” Luke Lango writes on behalf of his analyst team in their latest update.
“We suggest a smart and patient dollar-cost-averaging strategy, while with new positions, we will continue to monitor the markets and only pull the trigger on super high-conviction picks. Until the markets show more signs of bottoming and stabilizing, this will remain our strategy,” the Crypto Investor Network update concludes.
That being said, Luke and his team also had plenty of good news to share on their crypto portfolio holdings in the update. Click here to see how our analysts identify elite cryptos for their members, and I’ll continue to keep you updated on promising projects like Optimism here in The New Digital World, as well.
On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.