The Ultimate Guide to the Top 10 Protocols on Optimism
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The Ultimate Guide to the Top 10 Protocols on Optimism

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11 months ago

An overview of the top decentralized applications by total value locked on Optimism — the second-largest Ethereum Layer 2 scaling solution.

The Ultimate Guide to the Top 10 Protocols on Optimism

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What Is Optimism?

Optimism is a Layer 2 scaling solution built on top of the Ethereum blockchain. Designed to scale Ethereum, Optimism uses Optimistic Rollup technology to increase transaction speed and reduce gas fees on Optimism. Since Ethereum underwent The Merge in 2022, L2s have steadily built up traction — three of the ten largest chains by Total Value Locked (TVL) are L2s. While Arbitrum is leading the ranks, Optimism is hot on their heels, sitting not far behind at 6th, with just over $1 billion in TVL on the chain.

Source: DeFiLlama

What are the exciting protocols building on Optimism? Let’s explore the top DeFi protocols on Optimism by TVL today.

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Top Protocols on Optimism by Total Value Locked

1. Velodrome

Source: Velodrome Docs

Velodrome was built off the design of DeFi godfather Andre Cronje’s famous Solidly project on the Fantom blockchain. The Solidly project aimed to create a central hub of liquidity by combining the vote-escrowed token model popularized by Curve Finance and the (3,3) rebasing model of Olympus DAO. As Solidly distributed their SOLID tokens via airdrop based on TVL, many projects formed to gain the largest airdrop to gain control over Solidly. One of these projects was veDAO.
Solidly quickly lost steam however, as Andre seemingly quit DeFi for good, just days after Solidly’s launch. But veDAO picked themselves up, pivoted to Optimism and relaunched the Solidly model there, but with a few improvements of their own, including better planned emissions, more strategic token airdrops and improved tokenomics.
In short, Velodrome is an automated market maker (AMM), whereby liquidity emissions are controlled by users who lock the native token, VELO, as veVELO. The longer the lock, the greater the voting power bestowed on the user. These voters then earn from trading fees and bribes paid out to the pools that they vote on, encouraging active governance from token lockers. These bribes are fees paid by external protocols seeking to incentivize specific pools, such as that of their native token.

Source: Velodrome Docs

Due to its improvements over Solidly, Velodrome quickly established itself as a dominant player in Optimism. Today, it holds more than 32% of Optimism’s TVL as its largest protocol.

2. Synthetix

Source: Synthetix Twitter

Synthetix was one of the first few prominent DeFi projects on Ethereum. Synthetix initially launched in 2018 as a stablecoin project, Havven, but later pivoted to synthetic assets, hence the name. Synthetix allows for the creation of synthetic assets, known as synths, by staking the platform’s native token, SNX, or ETH. Any asset with a reliable price feed can be a synth. This includes, cryptocurrencies, equities, forex and even commodities. Synthetix also supports their own stablecoin, sUSD, as one of their synths and it is widely used in the DeFi space.
Synthetix has also partnered with a range of protocols to integrate their synths. Kwenta, for example, allows perpetual trading on synths while Lyra supports options vault strategies on synths. Recently, they also deployed Synthetix V3, allowing for permissionless synth creation and greatly improving Synthetix’s architecture.

3. Curve Finance

Source: Curve Finance

While not the first ever AMM to launch, Curve Finance was the first in another aspect — being the first AMM to focus on low slippage swaps better identically-pegged assets, such as stablecoins or ETH liquid staking derivatives (LSDs).
Curve eventually became the de facto AMM for such swaps, allowing them to secure their position as the 3rd largest protocol across all chains with over $5 billion in TVL. Just like Aave, Curve Finance is expected to launch their native stablecoin, crvUSD, this year as well. In fact, a governance proposal has just passed at the end of February, which will help to facilitate the release of crvUSD.

4. Aave

Source: CoinMarketCap

As one of the early protocols to launch in the DeFi space, Aave’s history stretches almost 5 years, beginning in 2017 as ETHLend. Aave quickly grew to become the go-to for borrowing and lending as the top money market protocol across all of DeFi. Despite conquering 7 chains, the team continues to build and ship, recently shipping Aave V3 as well as their native stablecoin, GHO, on Testnet. Aave V3 boasts new features including isolated pools for better risk management, efficiency mode for higher capital efficiency, and cross-chain borrowing and lending.

5. Beefy Finance

Source: Beefy Finance

The first yield-aggregator on this list, Beefy Finance is a key tool for any aspiring degen looking to explore the DeFi space. Beefy Finance aggregates yield opportunities on the chain and autocompounds your liquidity pool positions for you, for a small fee.
Beefy Finance also supports zaps, which allow you to deposit with only one of the assets in a liquidity pool (LP) position. Beefy uses your asset to purchase the other required asset in the pool and prepares your LP position in a single click.

Beefy Finance currently operates across 18 chains, holding over $300 million in TVL across all of them.

6. Uniswap

Source: Uniswap

Uniswap is widely regarded as the king of AMMs in DeFi, as the AMM that popularized the AMM model. In fact, Uniswap is the most forked protocol of all time, by number of forks and by total TVL held by its forks.

Source: DeFiLlama

Uniswap holds just over $4 billion in TVL on just 5 chains. Despite its success, Uniswap continues to innovate. It released Uniswap V3 in 2021, which allowed for concentrated liquidity to be provided on Uniswap. This greatly increased the capital efficiency of the protocol as well as allowed savvy liquidity providers to earn much higher fees on their positions. This feature was later also replicated on many new AMMs looking to achieve the same success as Uniswap V3.

7. PoolTogether

Source: PoolTogether

PoolTogether is a savings protocol, based on the concept of lottery-linked deposit accounts. Deposits on PoolTogether are deposited in money market protocols such as Aave to generate interest from lending. These interest payments are then collected and distributed randomly via a lottery on a daily basis. The higher the user’s average deposit over a prize period, the higher the chance of winning. This creates the opportunity for lottery-like returns without the risk of losing the money placed down in the protocol, as with a traditional lottery. To date, the luckiest winner so far won almost $40,000 with a deposit of only $74.

While returns are generally not entirely life-changing as with traditional lotteries, the “no-loss lottery” style of PoolTogether could help to incentivize saving in its users.

8. Sonne Finance

Source: Sonne Finance

Forked from Compound, Sonne Finance is an Optimism-native money market protocol. However, unlike Compound, Sonne Finance integrated itself with Velodrome from Day 1, creating a powerful flywheel for the protocol.

Source: Sonne Finance Docs

From the funds raised during their Liquidity Generation Event (LGE), similar to a Token Generation Event (TGE), Sonne deposits SONNE tokens and USDC as an LP into Velodrome. Sonne Finance uses their liquidity emissions to issue bribes to Velodrome voters to direct emissions to the SONNE-USDC pool. These VELO rewards are then directed back to Sonne Finance to be paid out to SONNE stakers. SONNE stakers also have the choice to stake as sSONNE or uSONNE, determining whether they receive their rewards in SONNE or USDC.
Beyond Optimism, Sonne Finance also has a sister protocol, Mare Finance on the Kava blockchain, looking to build the same flywheel with Kava-based Solidly fork, Equilibre.

9. Stargate

Source: Stargate Medium

Stargate is a fully composable native asset bridge built on the popular omnichain interoperability protocol, LayerZero. Stargate aims to bring all chains together, making cross-chain transactions seamless and connecting liquidity across chains. Leveraging on Stargate’s technology, protocols can be built on top of Stargate to facilitate cross-chain swaps as well as liquidity provision across multiple chains at the same time.
Stargate has also been instrumental to the multi-chain vision of several protocols such as Avalanche’s top DEX, Trader Joe, which has recently expanded to Arbitrum and Binance Smart Chain. With Stargate, their native token, JOE, is now transferable across all three chains.

Today, Stargate has amassed over $31 million in assets on Optimism alone, with over $440 million across the nine chains it operates on. Some users also speculate on the possibility of an airdrop of the LayerZero token in the future, if any.

10. BeethovenX

Source: BeethovenX Docs

BeethovenX is a fork of Balancer and its most successful one to date. Originally launching on Fantom, BeethovenX moved to Optimism in a joint venture with Balancer in June 2022 as L2s began to gain traction leading up to The Merge.
Balancer is a decentralized AMM, which utilizes its unique architecture to provide flexibility to the pools it supports. Balancer’s signature Weighted Pools, allow for specific weightages to be set in liquidity pools as opposed to just equal weights across all assets in the pool. This could help to reduce impermanent loss if your trading strategy is leaning towards a specific asset in the pool. Balancer also supports Liquidity Bootstrapping Pools (LBPs), which are able to adjust the weight of each asset dynamically in the pool. This allows token launchers to seed liquidity with lower capital requirements as well as create a more fair token launch distribution for token holders.
Beyond the innovations which Balancer brought to DeFi, BeethovenX has also devised their unique tokenomics solution, Reliquary, as an improvement to the popular vote-escrowed model by Curve Finance. Reliquary implements maturity-adjusted BEETS (maBEETS) to grant users increasing voting power and boosted rewards over time, rather than upfront when they lock their BEETS with BeethovenX. As such, large amounts of voting power can only be gathered over time rather than with pure capital.
The locked positions will also be represented by an evolving NFT, known as a Relic, which can be traded, split into multiple positions or merged into a single one.

Conclusion

As the rivalry between L2s continues to heat up, Optimism continues to innovate. Optimism most recently released their Superchain, a network of horizontally-scaled chains, all built upon the open-sourced Optimism stack. In fact, Coinbase’s L2 layer, Base, which is currently on testnet, is built on Optimism’s code and will be part of this Superchain.

While Arbitrum may still be in the lead for now, will Optimism’s strong development capability and partnerships allow it to catch up and take the lead as the top Ethereum L2?

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