Layer 2 network Optimism’s OP token surged to its all-time high of over $2.50 on Wednesday amid rising adoption of layer 2 networks.
OP, which launched via a community airdrop on May 31, 2022, was more recently trading at about $2.22, down 10% over the past 24 hours amid declining transaction volumes on the Optimism platform the past few days, but still up roughly 140% gain since the start of the year when it was hovering below $1, according to CoinDesk data. OP was recently up about 30% this week.
“People want layer 2 tokens and they see layer 2 adoptions happening,” said Nick Hotz, vice president of research at the digital-asset management firm Arca, referring to the tokens associated with companion blockchain systems. “Optimism is the only way to get good exposure to that theme currently.”
The OP token’s jump has outpaced the top two digital assets by market capitalization, bitcoin and ether, which have recently risen 39% and 33%, respectively, in 2023.
The funding rates for the token also remain positive, a signal that market sentiment is bullish among traders, according to data from Coinglass.
Despite the price surge, Optimism’s transaction activities recently dropped massively.
According to Etherscan data, daily transactions on Optimism reached an all-time high of 800,000 on Jan. 12, although the volume has subsequently sunk to some 200,000 daily.
Riyad Carey, research analyst at crypto data firm Kaiko, attributed the sharp drop in transactions to the recent completion of Optimism Quests.
The Quests, which ran from September through Jan. 17, encouraged users to interact with a variety of protocols on the network, including minting non-fungible tokens (NFT) after completing a task.
“It isn't necessarily discouraging,” he said. “The Quests were successful in onboarding many new users, but it does show that many transactions were directly related to this initiative.”
Layer 2 adoption
Optimism is a layer 2 scaling system, powered by Optimistic rollups technology, running on the top of the Ethereum network.
Optimism and other layer 2 scaling systems such as Arbitrum are supposed to make transactions on the Ethereum blockchain cheaper and faster. After Ethereum completes its EIP-4844 upgrade, also called proto-danksharding, later this year, it will make transaction fees on layer 2s even “an order of magnitude cheaper,” Marc Arjoon, Ethereum research associate at CoinShares, wrote in a note.
"2023 is shaping up to be the year of layer 2s," Arjoon wrote. "For years Ethereum has been struggling to scale effectively while preserving decentralization and security and layer 2s have seemingly solved this trilemma."
He added: “With a first-mover advantage and the most social capital, these advancements in scaling should help the Ethereum ecosystem prepare for the next wave of adoption and regain some of its lost market share.”