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Comparative Assessment of Top DeFi Projects on Optimism, What’s Your Pick?

EG 698 Top DeFi projects on Optimism

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The accelerating pace of innovation within the decentralized finance (DeFi) space has been nothing short of breathtaking. With Ethereum at its core, DeFi has given rise to an expansive ecosystem of decentralized applications (dApps), disrupting traditional financial systems by introducing trustless, permissionless, and transparent solutions. 

However, the demand for these services has revealed Ethereum’s scalability constraints. This is where Layer 2 solutions such as Optimism enter the scene. As a scalability upgrade to Ethereum, Optimism ensures faster, cheaper transactions while maintaining strong security guarantees. 

It is this promise of efficient scaling that is attracting an array of DeFi projects. In this guide to top DeFi projects on Optimism, we delve deep into the functionality, features, and unique benefits of seven key DeFi projects that have chosen Optimism as their platform.

Understanding Optimism

Optimism is an impactful enhancement to Ethereum, designed to offer users and developers the advantages of Ethereum’s robust security measures, while offering a platform that is faster and less costly. The Optimism platform utilizes the OP token for governance purposes, which can be bought or sold on well-known exchanges such as Coinbase.

Constructed by Ethereum developers, for Ethereum developers, Optimism is a highly efficient and scalable Layer 2 (L2) solution. This solution, boasting an architecture equivalent to the Ethereum Virtual Machine (EVM), allows seamless scaling of Ethereum applications. Optimism is committed to constructing a viable ecosystem through retroactive funding for public goods, thereby acting as a conduit to scale Ethereum’s present and fund its future.

Operating on Optimism bears a striking resemblance to operating on the Ethereum network, with one notable difference – the cost is approximately one-tenth. Users interacting with Optimism have the ability to engage with decentralized finance (DeFi) applications, as well as purchase, sell, collect, and mint Non-Fungible Tokens (NFTs), among other activities.

How does Optimism work?

Optimism leverages a technology termed ‘rollups,’ more precisely, ‘Optimistic rollups.’ The moniker ‘rollups’ is derived from the technique of aggregating or ‘rolling up’ data related to several hundred transactions – ranging from NFT mints to token swaps – into a singular transaction on the Ethereum mainnet, otherwise referred to as Layer 1. By bundling multiple transactions into one, the blockchain transaction or ‘gas’ fee necessitated for payment corresponds to a single transaction, which is efficiently distributed among all participants.

The adjective ‘Optimistic’ characterizes the rollups due to the presumption that transactions are valid until proven otherwise – akin to the principle of being ‘innocent until proven guilty.’ Any potentially invalid transactions may be challenged during a certain period by offering a ‘fraud proof’ and running the transactions’ computations in comparison with the existing state data. Optimism covers the gas expenses required to execute the computation for the fraud proof.

What makes it distinctive?

Optimism extends beyond being a mere blockchain technology; it embodies a collective, comprising companies, communities, and citizens collaboratively striving to reward public goods and build a sustainable future for Ethereum. While a number of open-source rollups are available, Optimism distinguishes itself with open-sourced, MIT-licensed code. 

The specification has been meticulously designed from scratch to integrate seamlessly with Ethereum, hence, functions just like Ethereum would, thereby enabling developers to begin innovating on Optimism instantaneously, without necessitating the learning of new programming languages or revising their existing code. Recognized as the most forked rollup, Optimism is a hub for a community of developers, builders, and crypto enthusiasts, all aligning with the same core values.

Top DeFi Projects on Optimism

In the ever-expanding realm of decentralized finance (DeFi), Optimism is making its mark as a powerhouse for Ethereum Layer 2 solutions. Its scalability and cost-effectiveness make it an attractive platform for developers and users alike. Consequently, numerous top-tier projects have migrated or are planning to migrate to this network. In this section, we explore seven standout projects that are thriving on the Optimism platform.

Uniswap

Arguably one of the most recognizable names in DeFi, Uniswap has earned its reputation as a trailblazing decentralized exchange (DEX). It utilizes an automated liquidity protocol that facilitates automated trading of Ethereum-based tokens directly from a web browser, without the need for an order book.

Here are the main features of Uniswap:

  • Automated Liquidity Protocol: Uniswap uses an algorithmic equation to automatically determine the price of assets, rather than a traditional order book.
  • Permissionless Functionality: Anyone can swap tokens, add tokens to a pool, or list a token on Uniswap.
  • Non-custodial: Uniswap allows users to maintain full control over their funds during transactions.

Uniswap’s integration with Optimism offers users drastically reduced transaction fees and lightning-fast trade execution. This shift does not only enhance the user experience, but it also increases the platform’s accessibility to a wider range of participants by eliminating high gas fee barriers.

Aave

Aave is another giant in the DeFi space, well-known for its lending and borrowing protocols. Users can earn interest on deposits and borrow assets without intermediaries, all in a decentralized manner.

Key features of Aave include: 

  • Open-Source Non-Custodial Protocol: Aave is transparent and allows users to maintain control over their assets.
  • Interest Rate Swapping: Users can switch between stable and variable interest rates to optimize their returns.
  • Flash Loans: Unique to Aave, these uncollateralized loans allow users to borrow and repay within the same transaction.

On the Optimism platform, Aave users can enjoy the same services but at significantly reduced costs. Furthermore, Aave’s integration with Optimism ensures faster transaction speeds, thus encouraging more users to engage with lending and borrowing services. The reduced fee structure also makes microlending a feasible option, further democratizing the financial services industry.

1inch

1inch is a DEX aggregator that sources liquidity from various exchanges and is capable of splitting a single trade transaction across multiple DEXs. This mechanism is designed to provide users with the best possible trading rates.

Here are the key features of 1inch: 

  • DEX Aggregation: 1inch sources liquidity from various exchanges to optimize trading.
  • Gas Optimization: To minimize transaction costs, 1inch uses ‘Chi GasToken’.
  • Governance Model: The 1INCH token allows holders to participate in governance decisions.

With Optimism, 1inch can continue to provide its services more efficiently. Users can expect faster transaction confirmations and dramatically reduced gas fees. Given the numerous transactions involved in a single trade, the implementation of Optimism’s roll-ups technology significantly amplifies 1inch’s cost and time efficiency.

Slingshot

Slingshot is a decentralized crypto trading platform that brings together the liquidity of multiple DEXs into a single, sleek interface. This innovative platform allows users to discover and trade tokens at the most competitive prices available.

  • Cross-DEX Trading: Slingshot pools liquidity from multiple DEXs to ensure competitive prices.
  • Real-Time Price Comparison: The platform compares prices across various DEXs in real-time.
  • Gas-Efficient Trades: Slingshot ensures that each trade is executed in a gas-efficient manner.

By leveraging Optimism, Slingshot can offer users faster transaction times and lower fees. The platform’s integration with Optimism further accentuates its user-friendly approach and commitment to delivering the best possible trading experience.

Sushi

An Ethereum-based DEX, SushiSwap was launched in 2020 as a fork of Uniswap. It has since distinguished itself through features like yield farming and staking. Its SUSHI token, earned by providing liquidity, grants governance rights and a portion of the exchange’s fee revenue.

  • Yield Farming: Users can stake their liquidity tokens to earn SUSHI tokens.
  • Onsen Menu: A rotational yield farming program offering high rewards on selected pairs.
  • SushiBar: SUSHI holders can stake their tokens to earn xSUSHI and a portion of the platform’s fee revenue.

By integrating with Optimism, SushiSwap can provide faster transactions and reduced fees for liquidity providers and traders. This enhances the platform’s attractiveness for both smaller retail users and larger liquidity providers, broadening its user base.

Perpetual Protocol

Perpetual Protocol is a decentralized perpetual contracts platform, launched in 2020. It allows traders to take long or short positions on various assets without needing to hold the underlying asset, and with up to 10x leverage.

The main features of Perpetual Protocol are: 

  • Perpetual Contracts: Traders can take long or short positions with up to 10x leverage.
  • Virtual Automated Market Maker (vAMM): This provides liquidity for traders to match their trades.
  • Non-custodial: Perpetual Protocol allows users to retain control over their assets during transactions.

By leveraging the Optimism platform, Perpetual Protocol can offer faster transaction confirmations and reduced fees. This boosts the platform’s performance for active traders, particularly those who appreciate the availability of leverage in their trading strategies.

Sonne Finance 

Sonne Finance is a financial service platform that operates in a decentralized manner, providing access to individuals, institutions, and protocols. This is an open-source and permissionless protocol that operates on the Optimism network.

On this platform, users can deposit their assets, which can be used as collateral to borrow against. The Sonne Finance platform works similarly to existing lending platforms such as Compound Finance and AAVE. Users can lend any supported assets and then use their capital to borrow the supported assets.

It has the following two goals: 

  • Gather TVL to Optimism with great yields without impermanent loss.
  • Become the major liquidity market with high incentives in comparison to other markets since it is native to Optimism.

80% of the revenue generated by Sonne Finance through users borrowing from liquidity markets is allocated to sSONNE stakers based on different reserve factors for different pools.

Conclusion

The intersection of DeFi and Optimism presents an exciting frontier for the expansion and maturation of decentralized finance. As we’ve seen, projects like Uniswap, Aave, 1inch, Slingshot, Sushi, Perpetual Protocol, and Sonne Finance have leveraged Optimism’s robust scaling capabilities to enhance their offerings and user experiences. 

These projects, with their unique features and value propositions, showcase the breadth and depth of what DeFi can achieve on Optimism. As Ethereum continues its evolution and Optimism further refines its technology, the future looks very promising indeed for the DeFi landscape.

FAQs

How secure are the DeFi projects on Optimism?

Projects on Optimism inherit the security of Ethereum's Layer 1, as the Optimism solution is built to secure assets with Ethereum's robust consensus mechanism. However, the specific security of each project also depends on its individual smart contract code.

Can I use Metamask with Optimism?

Yes, you can use Metamask with Optimism. Metamask, a popular Ethereum wallet, is compatible with Optimism's Layer 2 solution. However, you may need to add Optimism as a custom network in Metamask settings.

Are there any DeFi projects that haven’t migrated to Optimism?

Yes, while many DeFi projects have migrated to Optimism due to its scalability and low-cost advantages, there are still many that operate solely on Ethereum Layer 1 or other Layer 2 solutions.

How do I provide liquidity to a DeFi project on Optimism?

Providing liquidity typically involves depositing a pair of assets into a liquidity pool. The specific steps may vary depending on the DeFi project. Always consult the project's documentation for detailed instructions.

What is yield farming and how does it work on Optimism?

Yield farming is a way to earn rewards by providing liquidity to a DeFi project. On Optimism, it functions similarly to Ethereum, but with the benefits of lower transaction costs and faster execution times.

What if the DeFi project I use doesn't move to Optimism?

If a DeFi project doesn't move to Optimism, users can continue using the project on its existing platform. However, they may not benefit from the reduced fees and increased speed that Optimism offers.

How do I swap tokens on Optimism?

Token swaps on Optimism work similarly to Ethereum. You can use a DEX like Uniswap or SushiSwap on Optimism, ensuring you have the appropriate wallet connected and sufficient funds for the transaction.

How can I participate in the governance of these DeFi projects on Optimism?

Governance participation often involves holding the project's native governance token and voting on proposals. Each DeFi project has its own rules for governance, which can usually be found in their documentation.

What is the transaction speed on Optimism?

Optimism significantly improves transaction speed compared to Ethereum Layer 1. While exact times can vary, transactions on Optimism are often processed within a few seconds.

How can I track my transactions on Optimism?

You can track your transactions on Optimism using a block explorer compatible with the Optimism network. This provides you with real-time information about your transactions.

Our content is derived from a thorough research, yet we acknowledge the potential for deserving businesses to be overlooked. If you’re a business owner or a reader who believes a valuable business is missing from our list, write to us at [email protected].

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Micah Abiodun

Micah is a crypto enthusiast with a strong understanding of the crypto industry and its potential for shaping the future. A result-driven Chemical Engineer (with a specialization in the field of process engineering and piping design), Micah visualizes and articulates the intricate details of blockchain ecosystems. In his free time, he explores various interests, including sports and music.

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