Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
One of the bright spots this crypto winter has been the growth of Ethereum L2s and their native tokens. Although it’s still early in the development of L2s, Optimism has managed to grow DeFi economic activity whether you measure it in trade volume or total value locked, while maintaining a multibillion-dollar fully diluted valuation (FDV) since its token launch following the aftermath of the 2022 Terra/UST collapse.
Optimism’s OP token now commands a $5.6B FDV priced at $1.30 per OP token. Although OP has become a well known token among DeFi traders and investors, OP’s utility remains somewhat limited to governance.
The Optimism Collective is “a band of companies, communities, and citizens working together to reward public goods and build a sustainable future for Ethereum.” The Optimism Collective is based on the idea that healthy public goods create a thriving and valuable ecosystem. With OP at the heart of it, the economics of this ecosystem are designed to generate value for three constituencies:
- Value accrues to tokenholders through the productive re-deployment of sequencer revenue. Sequencer revenue is primarily directed to fund public goods, which creates ecosystem value and drives demand for blockspace.
- Value accrues to contributors and builders directly from retroactive public goods funding and the markets it enables. Builders expect to benefit symbiotically, given it’s better to build in an ecosystem with well-funded tools, education, apps, and infrastructure.
- Value accrues to users and community members from ongoing airdrops of OP, from project incentives made possible by OP ecosystem funding, and from the benefit public goods provide.
As of this writing, there is no OP staking but the OP token is getting used across a number of the most popular DeFi apps such as liquidity provisions, swaps, perps trading, lending, and borrowing. However, real yields denominated in OP for isolated OP deposits remain far and few between.
Until now! A DeFi multi-collateral and multi-synthetic protocol called Metronome launched their Smart Farming looping application this year, which we covered in Wealthy Mastery back in April. With Metronome, users can deposit collateral on Ethereum Mainnet or Optimism in the form of ETH, ETH LSTs such as stETH, stablecoins such as USDC, and now OP! These collaterals are then used to mint popular crypto synthetics including msETH, msUSD, and now msOP. These synths are often used in slippage-free trading, leverage positions, or yield farming.
Smart Farming is perfect for degens seeking more aggressive yield-earning strategies using a looping application for creating leveraged positions in a few clicks. Looping is when a DeFi application allows for borrowing a correlated, near equivalent asset such as msOP against OP collateral. With looping, smart contracts automate minting synths, swapping it on a DEX, redepositing it as more collateral, minting more synths, and so on (see example below for msETH and ETH). Looping allows DeFi pros to save time and achieve higher leverage with higher net APYs, while maintaining a relatively safer position than borrowing uncorrelated assets, such as DAI against a…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
