TL;DR: Cryptocurrency is a life changing opportunity for many people that get in early and know what they’re doing. It’s happening with OP and it will happen with other tokens on Optimism as well. 

It’s safe to say the crypto industry is still in its infancy with gigantic room left to grow. Optimism crypto tokens might be quite a good investment, but you have to know how to asses the status of the OP network and its future value.

In this article, we’re gonna learn how to judge the economics of a blockchain such as Optimism and draw a conclusion based on it.

Should you buy Optimism (OP)?

With a total predicted market cap of $15 trillion by 2025, crypto investing is clearly on the rise. Over the past few years the crypto industry has maturated from “magic internet money” into fully fledged companies that are on their way to become major financial institutions.

From the 40 year old Bitcoin maxi to the 15 year old who flips JPEGs as a side hustle, putting some money in novel technologies such as cryptocurrencies is now a trending activity for investors of all ages. The new generation didn’t get their shot at investing in the tech giants of today, and crypto is seen as the next big technological revolution.

Why is that you ask? To put it short, traditional assets have reached their explosive peak. Digital assets such as tokens, coins, and NFTs are a new financial instrument that you can use to better diversify your investing portfolio.

Tired of small returns people are shifting their attention to more compelling assets — but that also comes with several downsides. Navigating these downsides and preparing yourself for what to expect when buying tokens is a crucial part of investing. Knowing all the intricacies is not always necessary but some knowledge is required to not blow up your account by investing in crypto.

Optimism is a cryptocurrency and as any other cryptocurrency, it’s prone to volatility. After seeing the performance of the Optimism chain it’s understandable to ask yourself if OP is a good buy right now.

Buying its native OP token is one of the possible ways of making money on Optimism, but is it worth it? What does OP do and is Optimism the future? 

A clear answer to these 2 questions is needed before allocating a part of your portfolio to $OP.

Initially named Plasma Group, the project has rebranded to a for profit organization named Optimism. As the name implies, optimistic rollups give a window of 14 days to contest a transaction before it’s validated on the Ethereum blockchain.

If someone notices a fraudulent transaction, the rollup will execute a fraud-proof and verify the transaction’s computation. This means a longer waiting time for the transaction confirmation compared to other scaling solutions such as zk-rollups.

Optimistic rollups allow for a throughput of 3000+ TPS — without compromising on security. A swap via Uniswap on Optimism costs just $0.5 compared to the Ethereum L1 fees. As of 2022, Optimism is the second most popular scaling solution with a TVL of $1.4 billion.

Why does Optimism (OP) have value?

The OP token is named as “the common unit of account” of the Optimism ecosystem.

In simple terms, OP is the native token for the Optimism blockchain. It is used throughout the ecosystem and has many use cases.

Optimism is the network (also called blockchain), and the $OP token is the fuel that powers it. Every interaction on the Optimism chain requires users to pay a small fee, called gas fee. The gas fee is paid to miners & validators in exchange for securing the network.

Having no fees or a fee that is too low opens up the network to attacks and spam transactions. Blockchains work on the premise that attacks should be very expensive. If the fee is cheap attackers can spam transactions and clog the network. This is the case we’ve seen with blockchains such as Solana.

In the instance of Optimism, its native OP token is used by both validators and users. Both of these network members (or “actors”) need $OP for different purposes. This creates an economic structure that is healthy for the future of the OP token.

Validators need to stake $OP to confirm transactions and produce new blocks. Such a rule is implemented so that malicious validators can get sanctioned if they try to attack the network. Being stable and immutable at all times are the primary scopes of a blockchain, everything else comes second. If a validator tries to include a bad transaction in a block then its stake is cut — a concept known as “slashing”.

Using the Optimism blockchain also requires some OP, regardless of the type of transaction being sent. Users pay a small fee in OP to validators for verifying and including their transaction in a block.

Optimism’s “Casper the Friendly Finality Gadget” consensus mechanism requires OP tokens to be used as a measure for preventing bad behavior. Without it, users cannot make transactions and validators cannot join the network. With this in mind we can conclude that the main use case of the $OP token is securing the Optimism blockchain. 

Can the usage of the network affect the price of Optimism (OP) tokens? 

As more people join the network and use Dapps on Optimism it impacts the dollar amount that new buyers will have to pay when buying OP coins. If more users join the network, that puts economic pressure on the supply of the OP token. A bigger number of people will need to buy OP tokens — making the price of Optimism go up as more people use the chain and the dapps on it.

This also has an effect on the actors that validate the transactions users make on the network. More people means more transactions, and more transactions means more fees. 

So the more people use the network, the higher the revenue for all validators becomes. As the revenue grows, more validators join the network, buying and staking OP tokens to participate. 

This correlation between network usage and the value of the native token is a natural occurrence in Proof of Stake blockchains such as Optimism. It is also what gives the OP token its primary monetary value. How high that value can be is detailed in the next sections.

Why is Optimism (OP) going up/down?

Optimism, like any other cryptocurrency is volatile by nature. When you see the price suddenly go up or down, it’s normal to ask yourself why that happens. 

The price of a cryptocurrency is influenced by many factors like supply, usage, vesting schedule and market sentiment. Due to its tokenomics, the OP token is inflationary, meaning the price is naturally trending downwards. Because tokens are being released over time this results in selling pressure from investors. 

But that does not mean it can’t go up or down in price based on how much the Optimism blockchain is used. Usage is usually the key metric that influences the price of a token.

A negative event such as controversial team decisions or hacks can have broader implications for investors and result in the token price going down.

Positive events such as an airdrop or partnerships such as Optimism teaming up with PoolTogether gives confidence to investors in the long run.

This brings more users to the Optimism ecosystem and usually has a positive impact on the price, making it go up. Other parts of the Optimism tokenomics can also influence the price, let’s see what those are.

A portion of a token’s supply is usually locked at launch, with the rest being slowly released in time. This can mean months, years or even decades — so it’s important to know the specific timeline of the chain you’re investing in. Such releases are mentioned in official documents such the Optimism roadmap or whitepaper.

Scheduled vesting unlocks and investors selling their newly unlocked tokens can put selling pressure on the token. This can make $OP — the fuel of the Optimism chain — go down in price temporarily. 

However, as long as usage continues to grow that shouldn’t have too much of an impact in the long-term. The price of a coin is a complex number that stands on top of many pillars that are constantly changing. 

Blockchains are resilient by design and have a couple of measures implemented at the protocol level to combat possible issues. This ensures the Optimism network can still function or in the worst case come back online at a later time, unaffected. Unless a catastrophic event occurs it’s impossible to pinpoint the price movement to one single cause.

Can OP reach $10 per token?

Buying and hodling OP — the native token of the Optimism chain — is one way of potentially making money on Optimism.

By looking at its current price, it’s natural to think about the chance of OP hitting $10 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.

Let’s examine the potential growth of the OP token by analyzing its tokenomics. Optimism’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} Optimism tokens being in circulation today, that means a price of {PRICE} per OP.

How did we come to that calculation? It’s quite easy, the price of an Optimism token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each OP coin. 

By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of Optimism at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for Optimism to hit that price.

At a price of $10 per token, that means the current market cap of Optimism would equal ${{CIRCULATING_SUPPLY} * 10}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $10.

Now let’s shift our attention to the fully diluted market cap.

Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.

The fully diluted market cap represents the total value of a coin if all tokens were in circulation. Optimism’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} OP which means that no more coins above that number will ever be created.

Optimism has no maximum supply, which means there’s no cap on the maximum of tokens that can be issued.

These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.

How does this impact the price of Optimism? Taking into account the current price of an OP token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. OP coins that have been burned are not taken into consideration because they have been permanently removed from circulation.

Whether it seems gigantic or not, the number we came to above only takes into account the current price of an OP token. Doing the same calculation but with a price of $10 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 10} for the Optimism network fully diluted market cap.

These are all crucial details to know when calculating if Optimism can reach the price of $10 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.

The future of Optimism depends solely on its growth as a network used by tens and hundreds of millions of users.

If you’re looking to add some Optimism (OP) to your portfolio, the most trusted places to get some are Binance and Coinbase.

Can OP reach $100 per token?

Let’s get to bigger feats now, a price of $100 per OP token. If $10 got your attention, one hundred bucks for a single token definitely made you interested about buying some, but is that even possible?

As noted before, we should refer to the total market cap when thinking about the possibility of Optimism reaching a certain price. The fully diluted capitalization formula is a simple and fast way of assessing the future growth of chains such as Optimism (OP). 

At a price of $100 per OP, that results in Optimism being worth ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 100}. If that number seems high to you, well.. that’s because it is. Such valuation would make the entire Optimism chain one of the most valuable networks in the world.

While usually reliable, the fully diluted marketcap formula has one small caveat that usually gets overlooked. This small detail might make all the difference in the world when thinking about investing in Optimism.

The issue with such a simple calculation is that it doesn’t take into account the specifics of each chain. We are not talking about the features of the underlying technology, but rather the future events that might impact it. If the fully diluted market cap is too high it increases the efforts needed for the network to sustain such a price. 

Outliers have been observed, and it’s definitely possible for a cryptocurrency to reach a mind boggling capitalization. The most clear examples of that are giants such as Bitcoin and Ethereum. 

Being the one of the most valuable assets in the world, they have already broken the monetary barriers that a blockchain network can reach. But how did they do it? The answer is pretty simple, but doing it is quite the opposite.

The future growth of the token price is usually tied to the growth of the underlying chain that it powers. Constant updates, sustained development and users joining the platform are notable factors to take into account. 

If the founding team continue to deploy updates that make Optimism competitive it will result in numerous interested developers building on it. Developers will be incentivized to build revolutionary Dapps on Optimism and amass new participants to the network.

Whether sooner or later, this will be clearly reflected in the OP price. Users will come in and put buying pressure on the OP token, raising the price in return.

So, while a price of $100 is theoretically possible — and maybe even more than that — the future growth depends on relevant updates that increase the actual usage of the Optimism chain.

What a network does and the way it grows directly affects your investment in it. It is rare that you can buy a coin and then forget about it for months or years. 

If staying up to date with the events in the Optimism ecosystem is important to you then make sure to follow the latest OP news that come out.

Is Optimism (OP) dead?

If the price of a coin has stagnated for a long time, it’s healthy to ask yourself if the project has indeed died. Price, however, is not the only factor that should lead you to this assessment. 

There are many other parts in the lifecycle of a blockchain that have to function properly for it to keep growing. Another important factor is the activity of the Optimism development team.

If the development team, or Optimism developers in general, have signaled the abandonment of the network that’s a bad sign for the Optimism ecosystem. Lower development activity on the Optimism network means fewer dapps being built.

A blockchain such as Optimism gets its users from the number of dapps released on it. They’re the primary motive to use a smart contract platform such as Optimism, without dapps there’s no incentive to use it.

The fewer dapps are available, the less users want to use the Optimism blockchain for their transactions. When more dapps get deployed, new use cases become available and more users join the Optimism (OP) ecosystem. 

Currently, the Optimism (OP) blockchain is thriving both in dapps and development activity. This translates into a healthy ecosystem and new participants that join the network. With increased usage of the network comes more fees to validators, which are incentivized to spin up more nodes and further decentralize the network. 

This cycle needs to always function smoothly to keep Optimism and its ecosystem alive. To asses the current status and future of a network we need to take a look at the latest updates and plans.

The biggest updates on the Optimism (OP) chain are the launch of Optimism Collective and the lauch of its OP token.

More updates are also prepared for Optimism, but the development team remains secretive about its roadmap.

You can keep up to date with developments in the Optimism ecosystem by following the most recent news that come out. The two main ways to do that is to periodically check all the Optimism (OP) specific web pages, or by following a central news source that posts updates as soon as they happen. 

Even if the network growth starts to stagnate, knowing about it just a bit too late can make your whole investment worthless.