L2 Protocol Optimism Overtakes Arbitrum

Ethereum-based Layer-2 protocol, Optimism has outperformed Arbitrum in transaction volume since mid-December. 

Optimism Token Takes The Win

The transaction volume on both protocols has undergone a distinct divergence since last month. Even though both had been on a steady upward climb since the beginning of last year, Arbitrum had always maintained its lead in transaction activity. However, this changed towards the end of the year, when Optimism outpaced Arbitrum and that too quite significantly.  

The reason behind this divergence and the increased transactions is the Optimism token, which has been one of the leading performing tokens across Layer 1 and Layer 2 protocols. With liquid staking derivatives such as Lido and Rocket Pool performing well, investors are looking at more ways of gaining exposure to Ethereum. Since Arbitrum does not have its own token, it got left behind in the race. Other tokens in the Optimism ecosystem have also benefited from this increased interest and experienced gains of over 200% since the beginning of the year.

GMX Drops, Synthetix Grows

Furthermore, another factor contributing to the increase in Optimism transaction volumes is the drop in the use of GMX. This decentralized perpetual futures exchange is built on Arbitrum and has experienced a 30% drop in use since December 10. On the other hand, there has been an increase in activity on the Synthetix perpetual exchange, which is built on Optimism, since December 20. Additional protocols like Kwenta that are built using Synthetix on Optimism have also experienced a sudden spike in transaction volume. 

L2 Protocols Need Reinvention

Experts have opined that both the L2 protocols of Arbitrum and Optimism are some of the most important actors in the Ethereum ecosystem as they pave the way for scalability and increased throughput while maintaining the integrity of the Ethereum chain. 

According to Marom Yigy, the VP of Blockchain at LEAP (Web3-based sports-discovery and endorsement platform), the future of Layer-2 protocols depends on how well they reinvent themselves.

She said, 

“Layer 2 solutions are most often workarounds to bottlenecks on the Ethereum network; they won’t disappear at this step of the merge because gas prices aren’t expected to drop. That will likely change once sharding is introduced, because sharding itself solves the issue L2s were created to fix. By then, L2s might be less popular—though the big ones will find new ways of reinventing themselves.”

Arbitrum’s last significant upgrade took place on August 31, 2022, when the protocol launched its Nitro upgrade. Since then, Optimism has understood the challenge and raised the bar by introducing its own tokens. Arbitrum needs to step up the reinvention game if it wants to regain its former lead. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.