Are We Experiencing An Optimism Crisis?

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Overview

As Ethereum’s users grow day by day, certain capacity constraints have arisen. Due to this, “scaling solutions” have become necessary in order to reduce network costs. The primary goal of scalability is to increase transaction speed (fiercer finality), as well as transaction throughput (the number of transactions per second) without compromising security and decentralization. As a result, Ethereum’s layer 1 blockchain is oversubscribed and transactions are slow. Maintaining the health of the Ethereum network requires improving the network capacity in terms of speed and throughput. The Ethereum blockchain (ETH), the largest blockchain for smart contracts, has scaling issues. Thus, Ethereum becomes more expensive and slower as the number of users increases.

Since Ethereum’s scalability problems have emerged, a number of alternatives have emerged. They are also known as “Ethereum killers.”. Examples include Avalanche and Fantom. For Ethereum, layer 2 chains offer scalability in addition to the mainnet.

What is Optimism? How does it works ?

There are several scaling solutions for layer 2. One of them is optimism. Optimistic rollups use a technology that bundles large amounts of data into digestible chunks for easy consumption. Along with other layer 2s, such as Arbitrum, optimism is much cheaper to use than Ethereum.

Ethereum mainnet layer 2 is enhanced with an optimism chain. Whose data is published on mainnet for verification but transactions are conducted on optimism.

Optimism uses a technique called rollups, more specifically optimistic rollups.A rollup is simply a compilation of the data from several transactions into a single transaction on Ethereum mainnet (layer 1). They can be used for non-fungible token (NFT) mints, token swaps, etc.

When so many transactions are rolled up into a single transaction, the blockchain transaction, or gas fee required to pay comes down to only one transaction, conveniently distributed across everyone involved.

This technology is known as a rollup, and it relies on the principle that it is valid until it is proven false. Potentially invalid transactions can be challenged by providing a “fraud proof” and running the computations of the transactions with reference to state data during a certain time period. As a result of optimism, gas is reimbursed for running the fraud proof calculation.

User Behavior On Optimism

In order to analyze what is going on with Optimism , here we are looking the user behavior on optimism on hourly basis in different metrics .The following chart shows the number of transactions performed per hour on Optimism. It is evident that a good amount of transactions were initially made, but later dropped dramatically, and again, we can observe an increase in transactions on an hourly basis. 

The next metric that we would like to present to you is the number of active users. A wallet that has performed a transaction within an hour is considered active. On the hourly basis, we can see how many wallets are active on Optimism just like on the transaction chart above.

While it is impossible to find the location of a blockchain user, we can use heuristics and some guesses based on when the transaction is initiated to determine whether the blockchain user is from Western or Eastern countries. To conduct this analysis, we classified any transaction performed between 10th and 22nd hours of a day (GMT) as a transaction performed by a user residing in “Western Countries”.  It can be seen that Optimism’s distributions of transactions by Western and Eastern countries. The Western Timezone accounts for just over 54% of transactions.  

How do Optimism users when it comes to the number of transactions they perform? From Optimism blockchains, let’s see how many transactions were performed by  a user in the past 9 days. Ninety percent of users from Optimism blockchain have performed just one to ten transactions in the past nine days. Although Optimism has very low gas fees more number of users on Optimism blockchain perform a less number of transactions. This could be due to the general crypto winter mood. Since the recent meltdown, many retailers are scared or worse, financially burned, and are not interacting with blockchain.

The second category of users we notice in the charts below are those who have performed 11-100 transactions in the last 9 days. In this , 8.8% of Optimism blockchain users performed 11-100 transactions. 

In order to gain a better understanding of how users are using distributed exchanges on Optimism, let’s analyze what they are doing.

There is a noticeable difference between the behavior of DEX users on Optimism network. It was observed that the maximum average swaps were 21.81 on June 15, 2022, and the minimum average swaps were 1.74 on June 27, 2022.  A lower average swap rate was recorded on June 16, 2022, and June 21, 2022 than usual. A key driver behind this is the lower gas fees on Optimism. This allows DEX users to execute several swaps in a day.

The gas fees on Optimism are very lower when we compare with the Ethereum. However, how much is the cost difference? The following chart shows the average transaction fees paid by Optimism users in ETH. As we already know that the Optimism’s transaction fees are very low when compared to other network like Ethereum .

 The following chart shows the average transaction fees paid by Ethereum and Optimism users in ETH. On the graph, you can see that Optimism’s transaction fees are very low when compared to Ethereum. If you look at the comparison chart, you won’t even notice the transaction fees since they are so low!

In the chart below, we show how costly it is to perform a DEX swap on the Optimism blockchain.  On a busy day like June 15th 2022, the cost of a DEX swap was 99.63 times higher than on a normal day like July 23rd, 2022, when it was 28.53 times lower. There was a maximum number of times of 99.63 observed on June 15, 2022, and a minimum number of times of 18.82 on July 12, 2022.  In July 9, 2022, the average number of times is lower than normal, while in June 28, 2022, it is higher than normal

Swap transactions on Optimism are also more frequent than on other networks because of its low gas fees. According to the chart below, we can see both the number of DEX swaps that are executed per day as well as how many wallets carry out DEX swaps on Optimism. The total number of swaps between June 15, 2022 and July 23, 2022 was 2M.  A maximum of 69K swaps were observed on June 27, 2022, followed by a minimum of 21K swaps on July 9, 2022. There were almost double the number of swaps in July 23 compared to June 15, 2022, which were 25K. In terms of swaps, the trend is downward. In June 28, 2022, there were fewer swaps than usual

The total number of swapped users between June 15, 2022 and July 23, 2022 was 322K.  The maximum number of Swapped Users was 44K on June 27, 2022, and the minimum number was 2K on June 15, 2022. There was an increase in total Swapped Users between June, 2022 and July 2022.  The number of users swapped in June 28, 2022 is lower than normal, and the number of users swapped in June 16, 2022 and June 22, 2022 is higher than normal.

Observations

  •  The above analysis if we look at the Optimism Hourly Transactions, there we can observe an increase in transactions on an hourly basis and also can see a maximum number of transactions on July 19th 2022.
  • According to Optimism hourly active users over a period of time, Optimism has s 709.58K active users.
  • We can see on both layers and both timezones that Optimism transactions are performing in almost equal percentages on both timezones.The Western Timezone accounts for just over 54% of transactions.  
  • According to the Eastern and Western time zones Transactions performed by users of Optimism blockchain, almost 90% of all transactions are categorized as ‘1-10 Transactions’. As a result, the majority of transactions on this Optimism blockchain are performed by users with fewer than 10 transactions. 
  • When we look at the number of swaps performed by Optimism users, We can see an increasing number of swaps performed by users on Optimism network based on the number of swaps performed by an user. Due to Optimism’s lower gas fees, this is possible. This allows DEX users to execute several swaps in a day.
  • As we compare the average transaction fees in ETH for both blockchains, optimism shows much less change than Ethereum. Almost nothing. We can also say that due to the volatility of the crypto market, the average transaction fees on the Ethereum blockchain have changed considerably.
  • Based on the traffic on Optimism network, we can see that Optimism is about 28-99 times less expensive than Ethereum DEX when comparing its swapping fees to Ethereum DEX. 
  • According to the number of DEX swaps performed on Optimism between June 2022 and July 2022, total Swapped Users increased. 
  •  As we compare the number of users performing DEX swaps on both the blockchains, we can observe an increasing trend for Optimism.

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