Following its launch in late 2021, Optimism has grown to become one of the Ethereum ecosystem’s most important scaling solutions. This layer-2 network is designed to provide a low-cost, high-speed environment for various DeFi protocols and dApps to thrive.
With a total value of $1.04 billion locked on the chain, Optimism is home to over 90 decentralized finance (DeFi) protocols. Interestingly, some EVM-compatible protocols, like Velodrome, are overachieving, bringing more visibility and opportunities to the Optimism blockchain.
Today, we’ve curated a list of Optimism’s best protocols while highlighting their various features, mechanisms, and use cases.
Despite only launching in June 2022, Velodrome has become one of the largest decentralized exchanges native to the Optimism network, with a TVL of nearly $321 million. Velodrome Finance, fondly called, employs ve(3,3) mechanism that combines Curve’s vote-escrow technique and Olympus DAO’s (3,3) game theory.
However, this DeFi protocol addresses the core issues of this mechanism largely seen in Solidly – a smart contract that incentivizes fee generation rather than liquidity.
Unlike in Solidly, where voting rewards could be claimed before emissions, Velodrome ensures a healthy balance between voters and external bribers by tying rewards to emissions. In addition, this Optimism-based protocol provides that emissions are only directed towards productive liquidity. Another improvement users will find in Velodrome is prolonged emissions decay, making the protocol even more attractive for late adopters. Finally, this DeFi protocol offers its partners and various stakeholders white-glove support.
Velodrome oversees its utility and governance through two tokens, namely; $VELO – the protocol’s utility token; and $veVELO – the protocol’s governance token. $VELO, an ERC-20 token, incentivises liquidity providers through emissions. Now, holders of this token can vote-escrow their $VELO token in exchange for $veVELO, which is an ERC-721 non-fungible token (NFT).
Synthetix is a derivatives liquidity protocol that facilitates the distribution of synthetic assets or ‘Synths’ on the Optimism and Ethereum chain. This DeFi protocol offers synthetic assets that track the value of real-world assets, such as gold; fiat currencies, like the US Dollar; and cryptocurrencies, like Bitcoin and Ethereum. As such, Synthetix allows its users to access and efficiently trade assets normally unavailable to regular crypto traders.
Synths are derivatives that tokenize various real-world and crypto assets without being backed by the underlying assets. Synthetix employs the help of a decentralized oracle known as the Chainlink oracle network, which is a smart contract-based price-tracking protocol. This price-discovery protocol monitors, tracks and sends real-time data, like prices, on various underlying assets to Synthetix.
Furthermore, Synthetix has its own native token – the Synthetix Network Token (SNX). This token’s primary function is to collateralize the Synths issued by the protocol. It does this by a 600% collateralization ratio, which community governance decides.
As of this writing, SNX trades at $2.96 on CoinMarketCap, with a daily trading volume of nearly $45 million.
Beethoven X is one of the biggest decentralized investment platforms on the Optimism network. Built on Balancer V2, this protocol brings a different angle and next-level perspective to DeFi trading. With a total value of over $35 million locked on Optimism, one can say Beethoven X is becoming a staple in the DeFi space.
Beethoven X features a variety of liquidity pools on its platform. While some of these pools are owned by the protocol itself, others are community-run. The weighted pools, which are a unique type of liquidity pool that provides a higher level of flexibility and configurability, are the standout liquidity pools on Beethoven X.
Unlike liquidity pools that only provide 50:50 asset weightings, weighted pools allow users to create, invest, and trade pools with varying asset ratios and weightings. Each weighted pool can hold a maximum of 8 assets, with each assigned a weight indicating the fraction of the pool it makes up.
For example, a pool can contain two assets with a weighted ratio of 60:40 or four assets with a ratio of 30:25:25:20 – all up to eight different assets. The percentage of the assets in the weighted pools can be disparate – so long as it sums up to 100.
Source: Balancer Labs
Besides the weighted pools, Beethoven X also has stable pools, which are primarily for assets that are always in near parity with each other. Like other DEXs, Beethoven X enables its users to exchange different crypto assets, like FTM, LUNA, SOL, etc.
Additionally, users can participate in Beethoven X’s staking and farming program. By staking their LP token, users will receive rewards in the form of BEETS – Beethoven X’s native token. According to data from CoinMarketCap, BEETS has a maximum supply of 250 million tokens, with a fully diluted market cap of $17.04 million.
4. Sonne Finance
Sonne Finance is an EVM-compatible liquidity market protocol that offers lending services to individuals, organizations, and other protocols. This Optimism-based project enables its users to use their crypto assets as collateral, which they can borrow against. Sonne Finance is an open-source protocol, meaning developers can tweak it to suit their specific needs.
Sonne’s lending program employs collateral and reserve mechanics utilized by Compound Finance. In this mechanism, the ‘reserve’ factor refers to the percentage of interest the protocol receives. So, if the reserve factor is 10, then a 10% interest rate is paid on Sonne Finance’s borrowed asset.
The ‘collateral’ factor, on the other hand, represents the maximum a user can borrow against a given asset. For instance, the collateral factor of USDT is 90%; the maximum amount of this token a user could borrow in other assets (assuming they provided a collateral of 100 USDT) would be $90.
Sonne Finance has its own native token called SONNE, which was launched through a liquidity generation event (LGE). This token is currently priced at $0.33 on CoinMarketCap, with a daily trading volume of $2.2 million.
Toros is the first incubated protocol to launch on the dHedge ecosystem, which is an EVM-based protocol that enables investors to distribute funds to managers. Before its full launch at the beginning of the second quarter in 2022, Toros had a soft release within the dHedge protocol in 2021, offering effective inflation-hedging strategies to its users. This DeFi protocol is based on the Optimism and Polygon networks, with a TVL of $22.55 million on the former.
Toros offers a wide variety of features – all with unique capabilities. Currently, this protocol boasts three vaults, including dUSD stablecoin yield and inflation vault, Bitcoin yield vault, and Uniswap V3 Ethereum-managed liquidity vault. These vaults are designed to automate changing their inflation-hedging strategies to maximize returns.
Furthermore, Toros enables stablecoin yield farming via its native token – dUSD, rewarding its token holders with returns generated from automated allocation without currency risk and compounded incentives.
6. Perpetual Protocol
Perpetual Protocol is a top DeFi protocol and a collection of smart contracts on the Optimism chain. Inspired by popular DeFi ecosystems – Uniswap and Synthetix, Perpetual Protocol is a platform designed to facilitate the trading of perpetual contracts – a unique kind of derivative similar to a futures contract. It provides these exchange services by employing a virtual Automated Market Maker (vAMM), a Clearing House, and Collateralization Vault.
The vAMM is a distinct version of an Automated Market Maker, which uses an algorithm to determine the price at which digital assets can be traded. Unlike the typical AMM model that utilizes liquidity pools and enables the actual exchange of digital assets, Perpetual Protocol’s vAMM is only built for price discovery and not asset exchange. This is because the vAMM does not have liquidity pools where actual crypto assets are stored for trading; hence the name ‘virtual AMM’.
Perpetual Protocol has its own native token, PERP, used in the protocol’s staking program and governance. Stakers of the PERP token will be rewarded with a new token supply and a fraction of the platform’s trading fees. More importantly, this cryptocurrency is critical to the Perpetual ecosystem’s growth and development.
7. Pika Protocol
Another top derivatives protocol native to the Optimism network is Pika Protocol, with a TVL of $13.34 million – per data from DefiLlama. It is a decentralized inverse perpetual swap exchange offering nearly zero slippage for most pairs, up to 100x leverage, and low transaction fees. Pika Protocol can achieve capital efficiency and minimal trade slippage by concentrating its liquidity around the current price.
As with most DEXs, Pika Protocol utilizes a liquidity vault, which liquidity providers fund. LPs assume the opposite position of all traders on the exchange platform by’ staking’ or providing liquidity to the vault. While the vault collects all trading fees, funding fees, and liquidation profits of trades, it also pays for trader profits and puts up with trader losses.
One major draw of the Pika Protocol is the PIKA stablecoin. This stablecoin is minted and attains stability by a user opening a 1x short position in any supported perpetual swap markets or depositing one dollar value of supported coins, such as ETH or wBTC.
Aelin is a permissionless EVM-compatible protocol designed to decentralize community fundraising and OTC deal sourcing. This platform aims to simplify the process of fundraising and deal sourcing on the Optimism chain. The protocol is governed by Aelin DAO (also known as Aelin Council), based on the Synthetix governance framework.
The Aelin project helps individuals (sponsors) and protocols to raise capital from their communities via two primary methods. Firstly, there is the Aelin Direct Deals, a terrific choice for sponsors or protocols looking to raise funds from investors at predetermined deal terms. For protocols that don’t have pre-established deal terms and are looking to test the waters, Aelin Pools are the most suitable option.
There are various custom features on the Aelin protocol, including NFT Gated Pools, Custom Allow List, Customizable Vesting Options, and Predetermined Deal Terms. Each feature helps ensure that new protocols can access substantial capital early.
With a TVL of over $2.1 million, Rubicon is one of the best-decentralized exchanges on the fast-rising Optimism chain. This DeFi protocol operates on an on-chain order-book model. Rubicon provides a platform where users can trade Ethereum-based tokens with Market and Limit orders and earn a passive income by providing liquidity to other traders.
The core idea backing the Rubicon exchange platform is the RubiconMarket smart contract, which is the central order book of the protocol. This smart contract acts as a middle layer that enables the p2p exchange of ERC-20 tokens via an order book. Each order book is presented as two double-linked sorted lists, one for the purchase and the other for the crypto market’s sell side.
Additionally, Rubicon allows its users to earn a passive income by providing liquidity on the protocol’s open order books. When users deposit crypto assets into the Rubicon Pools, they receive a liquid LP token (characterized by the prefix ‘bath’, e.g bathETH and bathUSDC) in return. This bath token is like a proof-of-stake in the corresponding liquidity pool and a claim to their portion of the pool’s prospective yield.
10. Polynomial Protocol
Polynomial Protocol is a top DeFi platform for options trading on the Optimism chain. Founded in 2021, this protocol facilitates the exchange of options with efficient liquidity, which is constantly rebalanced through the Black Scholes pricing mechanism. This enables users to purchase on-chain options conveniently and securely at the best price.
Polynomial enables users to earn a passive yield on different assets via synthetic products developed by automated derivative strategies. This is possible due to the protocol’s standout feature, the Earn Vault, the first DeFi Options Vault (DOV) to execute entirely on-chain by trading options directly to an AMM. The earn vaults operate two primary strategies: Call Selling and Put Selling.
It is worth noting that the vaults only support deposits in synthetic assets (Synths). For the put-selling vaults, users can deposit sUSD. Call-selling ETH vaults, on the other hand, accept only sETH deposits.
Following the smooth transition of Optimism’s Goerli Testnet to Bedrock earlier this year, it is only a matter of time before we see the mainnet Bedrock migration. With the Bedrock upgrade, Optimism will be the go-to network for getting the lowest possible data fees, withdrawing bridged assets, and so on.
It goes without saying that the Optimism ecosystem will continue to expand while also developing into a force to be reckoned with in the DeFi space. As such, we expect to see newer and innovative protocols adopt the layer-2 network in the coming months.
[Editor’s Note: This article does not represent financial advice. Please do your research before investing.]
This article is done by our freelance writer, Opeyemi Sule
Featured Image Credit: Chain Debrief