Detailed Explanation of Optimism Token Economics, Governance Mechanism, Distribution Mechanism, and Airdrop Conditions

*Source: Optimism Official Documentation *and Governance Forum Post

Compiled by: Gu Yu, Chain Catcher

On April 27, Ethereum scaling solution Optimism officially announced the issuance of the OP token, along with the tokenomics and governance mechanism, launching a large-scale experiment in decentralized governance called Optimism Collective. It is reported that the initial total supply of OP tokens is 4,294,967,296, of which 19% is allocated for airdrops, with over 260,000 addresses qualifying for the airdrop. The website to check eligibility is https://app.optimism.io/governance.

Previously, on March 18, Optimism announced the completion of a $150 million Series B funding round, with a valuation of $1.65 billion, co-led by a16z and Paradigm.

Below is a detailed introduction to the project's tokenomics, governance mechanism, distribution mechanism, and airdrop conditions based on the official documentation from Optimism.

1. Tokenomics

The philosophy of Optimism Collective is that healthy public goods create a prosperous and valuable ecosystem. The economics of this ecosystem aims to create value for three groups:

• Token holders gain value through the effective redeployment of Sequencer revenue. Sequencer revenue is primarily used to fund public goods, thereby creating ecosystem value and driving demand for block space. The rights to block space are a sustainable source of revenue that drives the OP economic model and grows alongside the network itself.
• Contributors and builders directly gain value from the funding of retroactive public goods and the markets they support. Builders can also symbiotically benefit: it is best to establish an ecosystem with well-funded tools, education, applications, and infrastructure.
• The value for users and community members comes from the ongoing airdrops of OP, project incentives supported by the OP ecosystem funds, and the benefits provided by public goods.

In summary, the demand for OP block space generates revenue, which is distributed to public goods, and the value of public goods drives the demand for block space.

In addition, OP holders will be able to vote on the distribution of project incentives, including the removal of a board member from the Optimism Foundation and vetoing changes to the founding documents of the Optimism Foundation. Specific participation details can be found in the governance mechanism section.

2. OP Distribution Mechanism

At genesis, the initial total supply of OP is 4,294,967,296, and the total supply of tokens will expand at a rate of 2% per year.

64% of the initial token supply (i.e., the total amount of OP not reserved for core contributors and investors) will be allocated to the community. Over time, these allocations will be managed by the Optimism Foundation as the steward of the Optimism Collective.

In the first year, 30% of the initial token supply will be provided to the foundation for distribution. After the first year, token holders will vote to decide the foundation's annual OP allocation budget. The foundation aims to seek the following annual allocations:

• Year 2: 15% of the initial token supply
• Year 3: 10% of the initial token supply
• Year 4: 4% of the initial token supply

Optimism expects the total supply of unlocked OP tokens to approach the following chart:

In terms of specific allocations, 25% of the tokens are allocated to the ecosystem fund, 20% to retroactive public goods funding, 19% to user airdrops, 19% to core contributors, and 17% to investors.

1. User Airdrop

The Optimism Foundation will distribute a portion of OP tokens to members of the Optimism and Ethereum communities in multiple rounds. The first user airdrop will allocate 5% of the OP token supply, with an additional 14% of OP tokens to be airdropped in the future. The specific mechanism can be referenced in the third section.

2. Ecosystem Fund

The ecosystem fund is an incentive program designed to stimulate the development of the collective ecosystem. The ecosystem fund will be used to directly fund communities and companies that drive the expansion of the collective ecosystem (OPCO), including governance funds (5.4%), partner funds (5.4%), seed funds (5.4%), and unallocated (8.8%).

The ecosystem fund is intended to serve as a launch mechanism, and once the OP in the fund is exhausted, this mechanism will be completely phased out. Optimism expects that the functions served by the ecosystem fund will eventually be replaced by third-party investors such as private placements.

3. Retroactive Public Goods Funding

Retroactive public goods funding (RetroPGF) will initially be distributed by the Citizens' House. RetroPGF rounds are expected to occur quarterly, with the aim of ensuring that all OPCOs receive adequate, appropriate, and reliable rewards based on their impact on the collective.

RetroPGF will be funded by several revenue sources: 20% of the initial OP token supply as a "RetroPGF reserve"; transaction fees from the Optimism network and Sequencer revenue.

4. Core Contributors

The share for core contributors will be allocated to those who helped bring Optimism and the Optimism Collective from concept to reality and will continue to be compensated for the development of the protocol. All tokens in this portion will be subject to a lock-up period.

5. Investors

Investors funded Optimism's ambitious vision for the future. All tokens in this portion will also be subject to a lock-up period.

3. Airdrop Mechanism

The Optimism Foundation's Airdrop #1 rewards those who are early adopters and active users of projects within the Optimism ecosystem. Additionally, some active Ethereum L1 participants may also receive airdrops, as they can help extend Ethereum's innovations, culture, and values to Layer 2. A total of 264,079 addresses are eligible to claim OP in this initial airdrop.

Optimism has designed six criteria for the airdrop, with two targeting early and active Optimism users, and four targeting active contributors, positive behaviors, and engaged users on L1 Ethereum. Each set is distinct, meaning addresses that meet multiple criteria can receive multiple token distributions. The address snapshot was taken on March 25, 2022, at 00:00 UTC. The allocations and criteria breakdown are as follows:

1. Early Adopters of Optimism

Optimism seeks to identify users who actively use applications on Optimism.

1) Optimism Users:

This group includes addresses that have used Optimism, including early adopters and new users, but will be narrowed down to those who have used Optimism multiple times.

Criteria: Addresses that bridged from L1 to Optimism before the early stages of the mainnet (before June 23, 2021), or used Optimism for more than 1 day (at least 24 hours between the first and last transaction) and traded using applications (after June 23, 2021).

2) Active Optimism Users:

This group selects the most active Optimism users who repeatedly return to use applications within the Optimism ecosystem.

Criteria: The address is an "Optimism User" and has conducted at least one transaction with Optimism applications in four different weeks. This will select the top 20% of "Optimism Users."

2. Active Ethereum Participants

These rules aim to target behaviors that align with Ethereum and Optimism values, namely active contributions, positive behaviors, and extending decentralized applications worldwide.

1) DAO Voters

Optimism believes that actively participating in governance is crucial for scaling decentralized systems. Addresses that meet this criterion have actively contributed by participating in governance.

Criteria: Addresses that have voted or written at least one on-chain proposal, or at least two Snapshot (off-chain) proposals.

• Optimism filters for "active DAOs" that have at least 5 proposals and received at least 5 votes.
• On-chain governance contracts include: Governor Alpha and Bravo, Aave, Maker, Curve, Aragon, DAOHaus, DAOStack, and forks.
• Since Snapshot voting is off-chain, these votes are more susceptible to spam/farming behavior, typically driven by voters with nominal voting rights. To mitigate this, Optimism filters Snapshot votes to the top 99.9% of voters by total voting power in each DAO (i.e., >= 0.1% of voting power is composed of the sum of all smaller voters).

2) Multi-signers

Multi-signers are entrusted with larger pools of funds or control key protocol functions. They are often the leaders and builders of DAOs now and in the future.

Criteria: The address is a current signer on a Multi-Sig that has executed at least 10 transactions (this group includes 95% of all multi-sign transactions).

Multi-sign wallets include: Gnosis Safe v0.1.0-1.3.0, MultiSigWithDailyLimit, MultiSigWalletWithTimeLock, and addresses in Etherscan's "Multisig" tag that have the capability to retrieve owner addresses.

3) Gitcoin Donors

Gitcoin donors choose to act positively by funding public goods. These addresses may also align with Optimism's goal of establishing sustainable funding sources for public goods through retroactive funding.

Criteria: Addresses that have made on-chain donations through Gitcoin. This includes any donations, regardless of whether they were made during matching rounds.

• Between Round 1 and Round 5, Optimism includes addresses that interacted with Gitcoin contracts, sent legacy ExecuteSubscription calls, or appeared in Gitcoin's donation API.
• Between Round 6 and Round 13 (currently), Optimism includes donor addresses in the transaction logs of Gitcoin's "BulkCheckout" contract.

4) Some Ethereum Cross-Chain Bridge Users

Active users of dapps on Ethereum are crucial for the ecosystem's development. Due to high fees, many of these addresses have begun bridging to other chains, and Optimism hopes to help retain them within the Ethereum ecosystem while rewarding their curiosity and exploration. Optimism's airdrop is also calibrated to reward loyalty to Ethereum, so users who completely abandon Ethereum will not receive an airdrop.

Criteria: Addresses that bridged to another chain but still conducted at least one application transaction on Ethereum each month after bridging, and have traded at an average rate of at least 2 times per week since then (the top 60% of matching addresses).

• Top L1 cross-chain bridges in terms of TVL: Terra, BSC, Fantom, Avalanche, Solana, Polygon; and general L2: Arbitrum, Optimism, Metis, Boba.
• To ensure there is sufficient time to sample activity, addresses must have bridged from Ethereum at least 90 days prior to the snapshot.

3. Overlapping Bonuses

Early Optimism users who meet multiple Ethereum criteria are most likely to become significant participants in the Optimism ecosystem, thus these addresses receive additional overlapping rewards.

Criteria: Addresses that meet the "Early Adopters of Optimism" criteria and match at least 4 total criteria sets (including the Optimism criteria). As more conditions are matched, the overlapping bonus increases (i.e., the bonus for 5 conditions is greater than the bonus for 4 conditions).

4. Global Filtering Criteria

To narrow the airdrop list down to real users as much as possible, Optimism applies some basic filters to various criteria:

• Address Activity: Addresses need to have used Ethereum for more than 1 day (24 hours between the first and last transaction) to meet the "Active Ethereum Participants" criteria. This applies to all Ethereum criteria except for multi-signers, as signers typically have "sign-only" addresses.
• Sybil Attack Addresses: Optimism has identified some potential Sybil attacker patterns that frequently create dozens, hundreds, or more duplicate addresses.
• Snapshot Bots and Spam: Optimism uses ENS's bot capture proposals to filter out spam Snapshot voting addresses.
• Exchanges and Entrances: Optimism filters out known centralized exchange and fiat entrance addresses.
• Attackers: Filters out known exploit attack addresses.

4. Governance Mechanism

In the future, Optimism will be collaboratively managed by the Optimism Foundation and members of the Optimism Collective. Simple token-based governance systems often deteriorate due to inconsistent incentives or excessive concentration of power. The Optimism Collective will implement structural mechanisms to offset these drawbacks, starting with a bicameral governance system that balances the powers of OP holders and OP citizens.

As a large-scale experiment in decentralized governance, the core governance structure of the Optimism Collective consists of two equal houses: the Token House and the Citizens' House, tasked with balancing short-term incentives with long-term vision in pursuit of the Optimism vision.

The upcoming Airdrop establishes the Token House by distributing OP to thousands of addresses engaged in positive, community-oriented behaviors. As part of governance funds, protocol upgrades, etc., token holders will be able to vote on the distribution of project incentives.

Next, the Collective will establish a Citizens' House to facilitate and manage the distribution process of retroactive public goods funding. Citizenship will be granted through a non-transferable NFT that is "soulbound," and the collection of citizens will grow over time. The mechanism for allocating citizenship will be determined by the foundation based on the opinions of the Token House.

According to the procedures outlined in the founding legal documents of the Optimism Foundation and the Collective's operational manual, future OP citizens can participate in the allocation of retroactive public goods funding and exercise other rights granted to citizens over time. OP holders can remove a board member from the Optimism Foundation and veto changes to the founding documents of the Optimism Foundation if such changes would substantially reduce the rights of OP holders.