Sirwin
Sirwin
An image of Ethereum's Logo in a swirling cloud

Why Optimism is The Secret Bet on Ethereum To Double Your Returns


Optimism (OP) is a Layer 2 built on the Ethereum (ETH) blockchain. Recently, its price has shot off astronomically, but I don’t think the run is done yet. All analyses depend on the timeframe of analysis, yet if we bear that in mind there's a case to be made that OP could do 20x from current prices, likely 2x better than ETH in the next bull run.

Let's cover this in three points.

1 What is Optimism?

It’s a Layer 2 coin on the Ethereum blockchain, meaning that it only works by tying its actions into Ethereum’s protocol. Put simply, it batches transactions on its own chain and then sends those to ETH to be recorded on the blockchain.

That allows ETH to process far more transactions than it could otherwise, and ETH’s slow speed is one of its largest problems at present.

Another nice thing is that it has no memory pool.

The problem is that before your transactions get processed by a miner, they sit in a memory pool, and bots can look at possible transactions. If you have a buy priced at $1610 for ETH, they can get in at $1609 and then sell immediately to "earn" $1 off your trade, basically. It means you lose immediate value to your trade too.

On Optimism, that can't happen.

In sum, this is a scaling L2 on Ethereum with some cool additional features. Now let’s look at the coin distribution schedule to see if there is a possibility of earning much.

2 Tokenomics

Fortunately, a nonprofit foundation runs Optimism. So, while some people will make money, this isn’t a cash-grab token.

The token has an annual 2% inflation schedule but as long as that’s less than the increase in demand, the coin will go up in value. That’s what happened with ETH anyway.

The real concern is often the coin distribution schedule as allocated to the foundation to incentivize development on the protocol. Here’s that schedule

Year 1 - 30% available

Year 2 - 15% available

Year 3 - 10% available

Year 4 - 4% available

That doesn’t mean that in the first year, 30% will be dumped on the market. That is simply available to give to developers in exchange for their work. As you can see from the chart below (a screen grab from CoinMarketCap), it’s hardly dented the coin’s price appreciation. 

main-qimg-4e9c3ff25f9b4f03a2d9feb60fb5e376-pjlq

3 How Much Moon?

Just so everyone can follow, we’ll be assessing market capitalization, which = the price per coin * the number of coins.

Let's be conservative and suppose that Ethereum is able to do about 10x from its present value. That would put its coin price at $16,000 and its total market cap at about $1.9 trillion. That's possible, but it will require a lot of appreciation.

OP, by contrast, has a $500m market cap, but with all the coins allocated, its total market cap is $9b. That would be for about 4-5 years out from now. We’re likely to see a bull run before that, so, let’s use $5b as a suitable market cap (we are estimating).

Now, could Optimism hit $50b in market cap by the end of the next bull run? ETH, did better than $560b in the last bull run alone, so 10x looks like a legitimate possibility.

Could OP hit $100b. That would be less than 20% of what ETH was worth in the last bull run (and likely less than 10% of what ETH will be worth in the next one), so that seems possible = 20x from present values.

That would double ETH's expected returns.

And OP is the same directional bet as ETH, succeeding largely because ETH will succeed.

Happy Trading!!


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Notes and Disclosures

This post is provided for entertainment purposes only. I am not giving you financial advice and you should expect no financial returns one way or another based on my statements. These points hold equally for any statements that could be attributed to 1.2 Labs or any related business entities. If you decide to buy or invest in anything, then your returns and potential losses are your own. No statements about taxation are taxable advice and you are encouraged to consult your own tax professional. No statements are legal advice and you are encouraged to consult your own legal professional. You are also encouraged to do your own due diligence before investing in anything.

Finally, I do actively invest. Many of my trades are quick and I do write about many investment items, whether stocks, coins, collectibles, and the like which I do not own. For the purposes of disclosing any conflicts of interest, assume that if it is covered, I own the investment item. Or if my coverage is negative that I am short the investment item.

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Sebastian Purcell, PhD
Sebastian Purcell, PhD

CEO for both 1.2 Capital and 1.2 Labs | I'm an academic turned crypto hedge fund manager and incubator director.


1.2 Labs Research Insights
1.2 Labs Research Insights

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