Beginner's Guide to the Optimism Ecosystem

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Last week, Blocktrend discussed the imminent Ethereum Layer 2 airdrop, and yesterday Optimism announced the airdrop of $OP tokens as scheduled. Although the article was one week early, preventing you from experiencing the thrill of being an airdrop hunter, you can still enter your wallet address at the bottom of this page to check if you qualify.

If you didn't receive the airdrop this time, don't worry. Optimism is a brand new Ethereum Layer 2 ecosystem, and there are many more airdrop opportunities to come as the ecosystem grows. This article serves as Blocktrend's guide to the Optimism ecosystem, taking you into this exciting new world.

Layer 2

Let's start by explaining how the relationship between users and Ethereum has changed with the introduction of Optimism.

For most users, whether they are making transfers, engaging in DeFi, or using NFT applications, they interact directly with Ethereum. Transactions are processed by Ethereum, and data is stored on the Ethereum blockchain. Everything happens in one place, and this simplicity was ideal when Ethereum had fewer users. However, as Ethereum's popularity grew, it started to become congested, leading to high transaction fees and long wait times. To overcome these challenges, users began exploring other blockchains.

This is where Layer 2 comes in as a solution to improve Ethereum's scalability. By moving to Ethereum's Layer 2, users can enjoy reduced transaction fees and almost instant confirmations. Layer 2 solutions focus on handling user transactions while keeping the data and decentralization aspects on Layer 1 (the Ethereum mainnet). This separation allows for improved efficiency and lower costs.

The challenge lies in convincing users to transition from Layer 1 to Layer 2. Most people are used to transferring ETH from exchanges to their Ethereum (Layer 1) wallets before using DeFi or purchasing NFTs. However, in the future, it will be more cost-effective to move ETH to an Ethereum Layer 2 wallet before engaging in any activities.

Wallets are your passports to the blockchain world.

MetaMask Wallet and Chainlist

If you already have an Ethereum wallet address (starting with 0x), you can use the same address for your Optimism wallet. However, if you don't have a cryptocurrency wallet, the most common method is to install the MetaMask wallet extension in your web browser.

MetaMask is a well-known cryptocurrency wallet and, while it may not be the most user-friendly, it is certainly one of the most widely used. In the future, you'll need to connect your wallet to interact with most Optimism applications, so installing MetaMask is a good starting point.

Once you've installed MetaMask, you'll need to add the Optimism blockchain to your wallet.

MetaMask supports any blockchain that uses a specific technology called EVM (Ethereum Virtual Machine). Adding a new blockchain to MetaMask used to involve manually entering complex parameters, but now you can easily add Optimism by visiting the Chainlist website, finding Optimism, and clicking "Connect Wallet" and "Add to MetaMask."

If your MetaMask wallet automatically adds Optimism and you switch to the Optimism blockchain, you're all set! However, you'll need assets in your Optimism wallet to use it. To fund your Optimism wallet, you'll need to transfer ETH from an exchange or use a cross-chain bridge.

Exchanges and cBridge Cross-Chain Bridge

Many cryptocurrency holders keep their assets on exchanges, with only a few withdrawing them to MetaMask wallets. Even fewer have explored Ethereum Layer 2, and Optimism is just one of the options available.

Currently, very few exchanges support direct withdrawals to Optimism wallets. According to the Ethereum Foundation, among globally recognized exchanges, only Huobi allows users to withdraw ETH directly to an Optimism wallet. Exchanges like Binance, FTX, or Crypto.com only support withdrawals to another Ethereum Layer 2 solution called Arbitrum.

In the future, more exchanges will likely support Optimism withdrawals. However, for now, it's like booking a connecting flight since there are no direct flights. Instead of opting for the expensive Ethereum Layer 1, consider transferring your assets to Arbitrum first and then bridging them to Optimism.

Before you can bridge your assets to Arbitrum, you'll need to add the Arbitrum One blockchain to MetaMask, transfer ETH to your wallet, and then follow the steps to bridge your assets. Our destination, however, is Optimism, so you'll need to rely on the cBridge bridge between Arbitrum and Optimism.

The image below shows how I bridged 0.01 ETH from my Arbitrum wallet to Optimism using the cBridge. The bridge charges a small fee, and Arbitrum charges approximately 0.82 USD worth of ETH in fees. The transfer is virtually instant, and your ETH will appear in your Optimism wallet.

The experience is not only smooth but also cost-effective. The fees for bridging assets are likely lower than the withdrawal fees charged by centralized exchanges (typically at least 1 USD). This is one of the strengths of Layer 2 and something that traditional cryptocurrency users might find hard to believe.

You might wonder what applications you can try once you're on Optimism. In the blockchain world, everything requires money, and DeFi serves as the infrastructure of this new ecosystem. After basic applications like trading and lending are established, people start building NFT marketplaces and organizing DAOs.

DeFi emphasizes security and yield farming, and Coindix helps users find the highest-yielding opportunities easily.

Finding the Best Earnings with Coindix

Optimism hosts many DeFi applications familiar to cryptocurrency veterans, such as Uniswap, Aave, or Curve. If you prioritize security and want to minimize risks, these applications are your safest bet. They have not only emerged as leaders in Ethereum DeFi but have also undergone security audits by reputable firms, making them less likely to encounter significant issues. Additionally, their operation on Optimism is almost identical to Ethereum, with transaction fees being only a fraction of Ethereum's.

However, for those who are more adventurous, Coindix can be your ally.

Using the example shown in the image, once you select the Optimism blockchain you want to view at the top of the screen, all investment opportunities will be listed. If you then sort them by APY from highest to lowest, you can find the most profitable investments at the moment. For instance, in the top 5 rankings, there are Uniswap's WETH/SNX trading pair, cBridge's USDC liquidity pool, and another exchange, Synapse's USDC trading pair.

Readers familiar with DeFi understand that while the yield for WETH/SNX is high, it can potentially lead to impermanent loss when cryptocurrency prices fluctuate. If the loss in capital due to price fluctuations exceeds the additional earnings, it's not worth the risk.

For those looking to break even, you can consider options like the USDC stablecoin liquidity pool shown on the screen under cBridge. Although the overall yield rate is "only" 13.56%, as long as cBridge remains secure, the funds you deposit will gradually increase. However, it's important to note that even though the overall annual yield is 13.56%, it doesn't directly yield USDC. Instead, 12.99% of it is paid in CELR, which is cBridge's native token, and only 0.56% is received in USDC.

CELR's price can fluctuate with market conditions, so the $100 you receive today may not have the same value tomorrow. Of course, it could also be worth more. To securely earn the 13.56%, you'll need to periodically withdraw CELR and convert it to USDC.

However, it's worth noting that you can currently only withdraw CELR on Ethereum and not directly on Optimism. The fees for withdrawing rewards alone might exceed the amount you receive.

As a result, some investors may consider the USDC trading pair at the bottom of the image, provided by Synapse. While the overall APY is slightly lower, you receive all rewards in USDC, a stablecoin, and you can also operate on Optimism.

Both cBridge and Synapse, while not as established as some well-known DeFi applications, have undergone audits by multiple security firms, making them relatively safe options that balance risk and returns. While Coindix may not list all investment opportunities on Optimism, it can give you a general idea of the current market conditions.

In summary, the richness of applications on Optimism is not yet on par with Ethereum. However, as major exchanges gradually open up Optimism withdrawals, developers and users will slowly migrate from Ethereum to Layer 2. Using Layer 2 might earn you praise from friends today, but I believe that if you're still using Layer 1 for decentralized applications in a few years, your friends might tease you for wasting money.

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