April 7, 2022

Reasons for Optimism: Aktionariat supports optimistic roll-up protocol


  • In a previous post, we wrote about gas fees in relation to our security token standard.
  • This blog post explains Layer-2 scaling solutions and the optimistic roll-up protocol in particular.
  • Background: High gas fees in 2021 and relatively low throughput on the Ethereum blockchain.
  • Scaling solution: Optimism Layer-2 rollup as a means to reduce gas fees (transaction cost) and increase transaction speed (throughput).
  • Tool upgrades: Aktionariat‘s security token, dashboard, Brokerbot, widgets, and Portfolio App are now compatible with Optimism.

Background: gas fees and transaction speed

The Ethereum blockchain has had historically high gas fees last year. During mid 2021, fees had risen 6x compared to earlier the same year. It was no rarity for users to pay up to 100 CHF just in fees on a single transaction. Spikes in Ethereum gas fees in 2021 are largely related to network congestion caused by the meme coin and NFT mania at the time. 

Issues related to gas fees and transaction speed have not been conclusively solved yet on the Ethereum mainnet. One of the most recent upgrades to the network, the so-called London upgrade (August 5th, 2021), changed – among other things – the way transaction fees are calculated and automatized the process. Rather than holding an auction-like bid for every block to determine the gas price, as was previously the case, the upgrade introduced a new mechanism by which transaction fees are now algorithmically defined by monitoring overall network demand.

The next highly anticipated Ethereum upgrade involves the so-called Merge and Sharding – these and related upgrades were formerly referred to as ETH 2.0. While Merge is set to transition the Ethereum blockchain from the PoW (proof of work) to the PoS (proof of stake) consensus mechanism, Sharding describes the partitioning of the larger chain into smaller and faster ones – importantly, sharding, while on the Ethereum scaling roadmap, is not scheduled to be implemented before 2023. 

Why all the fuss? Reducing Ethereum gas fees is a surefire way to attract more users to decentralized finance. The only problem is that increasing the number of transactions per second (TPS) is difficult using Ethereum‘s Layer-1 (L1) security architecture. Or, to be more precise, it was. Until recently.

Layer-2 scaling solutions

Enter Ethereum Layer-2 scaling solutions. Popular examples include Polygon, zkSync, and Optimistic roll-ups (Optimism, Arbitrum). These scaling solutions either run as side chains or on top of Ethereum. Layer-2 solutions process transactions off of the Ethereum mainnet. Protocols such as zkSync and Optimism promise to maintain the same security measures and degree of decentralization as the Layer-1 blockchain. 

The basic idea with rollups is that transaction data is put on the mainnet, but the transactions are not executed there. This task is processed on the rollup network. Periodically, information on the rollup state is posted back to the mainnet. The added value of this approach lies in increasing throughput (transaction speed) and reducing gas fees for users interacting with the Ethereum network. 

Readers who prefer a visual explanation of how roll-ups work may refer to this video.

Reasons for Optimism

Figure 1: Benefits of Optimism, the leading optimistic roll-up solution

Optimism brings developer and end user-related benefits on at least four scores: Ethereum Virtual Machine (EVM) equivalence, security, speed, and costs. Figure 1 depicts visually. First, Optimism supports any Ethereum application through its Optimistic Virtual Machine (OVM). This feature allows dApps built on Ethereum to be ported with little to no architectural changes to Optimism. Second, unlike sidechains, Optimistic rollups derive their security from the Ethereum mainnet. While transactions are processed on Optimism, the data is written and stored on the main network. Through this feature, Optimism inherits the security advantages of the Ethereum blockchain while enabling scalability. Third, Ethereum's transaction capacity currently hovers at around 10 transactions per second (TPS). Optimism can achieve up to 10-100x improvements in scalability in comparison. Finally, gas fees on the Optimism network are significantly lower than on the Ethereum mainnet. Figure 2 shows how many times cheaper transactions were on Optimism as compared to Ethereum in the past five months. The data implies that savings in transaction costs when using Optimism are especially high when demand for the Ethereum network (i.e., gas fees) peaks.

Figure 2: Savings in transaction costs when using Optimism compared to Ethereum mainnet (12/11/2021 - 05/05/2022)

Trade-off: bridging funds from the Ethereum mainnet

To be sure, reaping the benefits of lower transaction costs and higher throughput on the Optimism network comes with an important trade-off: users need to bridge their funds from the Ethereum mainnet to the Layer-2 Optimism network. The bridging involves some additional steps compared to regular transactions on the Ethereum mainnet which we explicate in a detailed guide.

Looking into the future, demand for the Ethereum blockchain is likely to continue growing due to the ongoing expansion of its ecosystem (DeFi, NFTs, Gaming, Metaverse). That is why Layer-2 scaling solutions will remain important in the foreseeable future. Besides, these protocols are also compatible with upgrades planned on the Ethereum mainnet (described further above), which will improve the technical specifications of the Ethereum blockchain and user experience.

Aktionariat supports Optimism

Does Aktionariat support Optimism? Yes. We now offer companies the possibility to deploy their security tokens on Ethereum Layer-2 Optimism. All our existing tools (Dashboard, Brokerbot, widgets) have been updated and are fully compatible with Optimism. In addition, our Portfolio App is among the first to support optimism without the need for manual configuration.

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