Optimism and Arbitrum are two of the largest layer-two (L2) solutions that utilize Optimistic rollup technology to scale the Ethereum network. But each Layer 2 needs a flagship protocol for the ecosystem to thrive. But for Layer 2 to thrive, a chain-specific ecosystem needs to be built.
We focus on the differences between the two, with their flagship protocols and ecosystems built around them.
Optimism Ecosystem
On Optimism, the native flagship protocols are Synthetix (SNX) and Velodrome (VELO).
Synthetix is a decentralized synthetic asset issuance protocol. Users can use $SNX to mint synthetic $sUSD $sETH $sBTC that traces the price of the assets via Chainlink oracles. It is important to know that they started on mainnnet but are now all in on Optimism.
All protocols in the SNX ecosystem drive fees to SNX stakers. Over the years, there has been an exponential growth of the Synthetix ecosystem, which now consists of KWENTA on-chain-perps and LYRA on-chain-options. They also have Polynomial option vaults, AELIN fundraising, and OTC deals.
On the other hand, VELO is the first ve(3.3) DEX solidly fork that has succeeded and enabled an actual flywheel. It acts as Optimism's liquidity hub and the onboarding portal for new and multichain projects as a gateway to Optimism. Onboarded 30 protocols.
In addition, the team has done a killer job of Business Development getting protocols involved in the races of establishing sizeable veVELO positions and bribes to vote for emissions.
Besides, capital efficiency in attracting liquidity is extremely important for protocols establishing on a new chain. This increases team runway and allows them to focus on the actual development.
Velo-native protocols have also started to appear, building their protocol and tokenomics based on velodrome bribes and liquidity incentives. Velodrome is an integral part of Optimism in general but is also important for Synthetix as it allows for deep liquidity for synthetic asset pairs used by atomic swaps. The majority of the Synthetix ecosystem utilizes Velodrome for liquidity.
Arbitrum Ecosystem
On Arbitrum, the native flagship programs are GMX and Dopex (DPX). However, there is massive dominance of GMX.
GMX is a decentralized leverage trading protocol that uses GLP Liquidity Pool token of stables, ETH, and BTC to facilitate no slippage leverage trading. There is a dire need to look out for the release of synthetic assets on GMX, which will open up a lot more variety of trading pairs.
Protocol fees from trading fees and taking the opposite side of trades from leverage degens have led to extremely high yields. 28% APR currently with $400m TVL.
GMX is one of the reasons for the real yield narrative and led the way with 100% revenue share to stakers and LPs The composability of the GLP token is one of the main building blocks for many DeFi protocols on arbitrum, and the GMX ecosystem consists of:
Umami Finance- Delta-neutral yield vaults based on GLP.
GMD Protocol- Delta-neutral yield vaults based on GLP>
Rage Trade- Risk on/Risk off Delta-neutral yield vaults based on GLP and lending.
Kostren Finance- POL yield aggregator.
On the other hand, Dopex is an on-chain decentralized options protocol that uses an AMM to price options. They are building extremely innovative and capital-efficient solutions with their Atlantic Options suite, where they can borrow and use the collateral of an open Option position.
Final Thoughts
We see a more diverse ecosystem on Optimism built around the flagship protocols, but there is still not an abundance of wrapped wrappers wrapping wrappers as we see on Arbitrum.
Volumes are much lower on Optimism, so the real yield narrative is not living the same life as on Arbitrum. But we might have to worry about the dependence of GMX and GLP on Arbitrum.
Layer 2 season is only just beginning; if you are reading this, you are here for it!
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