Should You Buy Optimism (OP) Token?

By Bfab | Good vibes | 8 Aug 2022

Optimism (OP) has outperformed most of the other cryptos in the last 30 days. Further to the latest pump, it has a bit corrected. Will its price pump again or just start to dump?

Optimism (OP) token utility

Optimism (OP) token is the governance token of Optimism, a layer-2 chain built on top of Ethereum mainnet, which allows to benefit from Ethereum mainnet security with low transaction fees, due to the use of optimistic rollups.

Optimism (OP) tokenomics

The token was launched in early June with a drop of 200 million tokens. The number of circulating tokens will increase to over 2 billion by the end of 2023 through a combination of foundation grants and additional drops.

The first round of foundation grants recently reached about 20 protocols which applied for phase 0 grants and these grants have started being used as incentives for protocols:

Perpetual Protocol prepared a 1.8 million OP drop for its users.
Velodrome received 3 million OP tokens which are used to incentivize liquidity pools.
Aave, Thales, Rubicon, Pooltogether, L2Dao also recently began OP incentives for their liquidity pools.

The other phase 0 protocols will begin incentives shortly but with no announced start date. The upcoming phase 1 and phase 2 will add more protocols with additional incentives.

In summary, the Optimism team is dumping huge amounts of governance token into the market as incentives.

Specific VC issue

After year 1, the VCs (Venture Capitalists) and the development team will be allowed to unlock their tokens. This event will be anticipated by most traders who will start to dump their OP tokens before it occurs.

In summary

The OP token will remain a governance token only, unless the Optimism community decides to change its utility, which has not been done yet. It is currently used to distribute to the users of Optimism chain protocols some incentives, which initially pumped its price, since it increased the demand for OP token at the beginning, but will then dump it when all these users will start to swap their OP tokens for ETH or USDC, which might happen soon. Furthermore, the increase of the circulating supply to over 2 billion by the end of 2023 and the unlocking of the VC tokens may dump the price further.

Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.

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