This is the second piece on understanding Optimism Governance
This is the second and last part of a two-piece series in collaboration with Superchain eco (Highly recommend reading the previous part → find the last piece here). Buckle up because this next piece will get you up there, with the experts. P.S. No one is a dummy, and it’s always a good day to learn.
Presently, nearly 80% of the voting power within the Token House of the Optimism Collective is concentrated among 2.5% of delegates, primarily obtained through delegation (Optimism Governance Dashboard by CURIA, 2024). This power is rooted in the ownership and delegation of the Optimism Token (OP token), which is freely traded on secondary markets. Such concentration significantly shapes governance decisions regarding the code and capital within the Collective. This piece aims to delve into how this power dynamic functions within the Optimism Collective and its impact on shaping the evolution of Ethers Phoenix into its ultimate form, 'The Superchain.'
Moreover, it discusses the practice of collective decision-making within the Optimism Collective, an initiative leading advancements in scalability for crypto/web3. It also covers the areas that Optimism delegates govern, including the OP stack (code) and the distribution of OP tokens through programs like the grants program and Retroactive Funding rounds. Finally, the article introduces Optimism’s ultimate objective: 'The Superchain'—a network of interconnected blockchains running on the OP stack—and examines how collective decision-making will shape its future, introducing concepts such as the Law of Chains.
Before delving into governance within the Optimism collective, it's crucial to understand what decisions are at stake. The Collective primarily decides on two key aspects: the Code (OP stack and The Superchain’s future) and OP token distribution (Capital allocation). This section will elaborate on how the Optimism Collective governs these essential elements.
Ko (2022) defines code as instructions that a human writes to a computer/machine. The official Optimism docs (2024) provide further context on what is considered the code in Optimism as the human written rules or instructions for the Optimism protocol, also referred to as the OP Stack. Optimism defines The OP Stack as the standardized, shared, and open-source software development stack that powers Optimism, maintained by the Optimism Collective. This software stack is mainly being developed and maintained by OP labs.
Until recently, OP Labs exclusively managed the OP stack's upgradeability. However, OP Labs has articulated its efforts to decentralize this control by establishing a security council (OP Labs team, 2023). This move represents the second phase of decentralization, wherein the upgrade keys for the OP stack are entrusted not only to OP Labs but also to a broader group of 8 to 14 members.
Hargrave (2024) defines capital as anything that confers value or benefit to its owners. There are four billion OP tokens, with around one billion in public hands. Even though, according to the Howey test, the OP token is not legally seen as security (a form of Capital), it still embodies some strong characteristics, such as ownership and transferability, and is actively sold on secondary markets. One could say that the OP token is essentially the main resource that guides, funds, and governs the Optimism Collective.
The Optimism Collective opened its doors to the public through its first airdrop which distributes an amount of OP tokens to various addresses based on certain criteria. This currently was mainly administered by the Optimism Foundation. This initial distribution of OP tokens was also an attempt to decentralize decision-making power to a larger group. All the OP token owners are considered part of the Token House.
As mentioned in the previous piece, the OP tokens grant their owners the power to partake in decision-making around distributing the unallocated part of the total OP token supply, and these tokens are distributed through partnerships, grant programs, and a special funding program, namely the Retrospective Public Goods funding rounds. With these programs, the Optimism Collective aims to slowly distribute decision-making power and attract more applications and people to build and use with the OP Stack. The following sections will describe these OP token distribution programs in detail.
Understanding Optimism Collective's governance requires familiarity with its governance calendar. Within the Collective, decision-making in the Token House occurs in seasons lasting 4 to 6 Gregorian calendar months (Optimism forum post, 2024a). Each season consists of approximately three three-week voting cycles, with a reflection period and potential governance break afterwards (Optimism Docs, 2024). Currently, the Optimism Collective is in governance season 5, expected to end around May 2024.
pass through the Token house governance history →
The Optimism Collective encourages the development, participation, and usage of OP Stack and its solutions through an OP token distribution program, providing grants aligned with the Collective's needs (Collective Intents: Season 5, 2023). The Optimism Foundation (2023b) has structured this program strategically:
- Identifying the needs of the Optimism Collective (Intents)
- Developing strategies to fulfill those needs (Missions)
In essence, this means determining the direction and approach to achieve collective goals.
The needs of the Optimism Collective are defined as 'Intents,' serving as guiding objectives for alignment and focus. Consequently, all efforts supported by the Collective should align with these Intents. Specific 'missions' are established to address these needs effectively, each with a designated budget in OP tokens. These missions represent initiatives aimed at achieving a particular Intent, with various teams working to fulfill them (Collective Intents: Season 5, 2023).
There are two types of Missions:
The Intents of season 5 are;
Here’s a practical example to help understand the theory above:
“Let’s imagine you review the four intents and feel you have a great solution and team to help the Optimism Collective reach intent 2: Grow the Superchain. Under this intent, various missions have been created, and you feel that your work would fit the best in the mission; Helping new developers receive funding for building on Optimism. You write a proposal for this mission with your team and have to go through a few rounds of reviewing by the Optimism grant council and their subcommittees, after, if your proposal is accepted, you receive an amount of OP tokens as a grant to build it out.”
Expanding on the earlier discussion, The Optimism Foundation, Developer Advisory Board, Grant Council, and its subcommittees, alongside the RPGF rounds overseen by the Citizen house (badge holders), are the primary bodies governing OP token distribution through grants (Developer Advisory Board, 2023). The Grants Council comprises a Lead, an Ops team, and 13 Reviewers across three subcommittees: Builders, Growth Experiments, and Milestones and Metrics (Ethereum-Optimism Github, 2023). These committees evaluate proposals aligning with the Optimism Collective Intents.
Membership in the Grant Council is determined through a process where the Optimism Foundation selects candidates, typically top delegates or individuals with relevant expertise. These candidates are then voted on by OP Token holders (Token House) through a referendum-style poll. The top three or five candidates per committee are ratified as council members. Should a member fail to fulfil their duties, they can be replaced (source). Below is a previous voting event from Optimism's main voting platform, Agora, for reference.
Grants Council Reviewer Elections: Builder
In this short section, the method of a grant application and selection process is expanded on while using a case study:
‘ After applying for your mission grant, your proposal goes through an intake and a review period, during which the members review and rank your grant through an intent-specific rubric. If three or more members support your proposal, you pass. This means you are eligible for receiving OP tokens as a reward for the work you describe to complete.’
If you have an Optimistic solution for the Collective, keep an eye on the Governance calendar or the Optimism Forum. Currently, the grants council uses Charmverse as their main portal for mission grant applicants and reviewers.
Optimism operates through a bicameral governance system comprising the Token House and the Citizen House. This structure aims to mitigate plutocratic tendencies inherent in traditional voting systems. The Citizen House, where each badge holder holds equal voting power, is a key component of Optimism's non-plutocratic governance experiment. Around a hundred badge holders, chosen through soft delegation of OP tokens, form this group. They are responsible for allocating Retrospective Funding rounds, which reward completed work with OP tokens. Approximately 40 million OP tokens have been distributed across three previous rounds. Critiques from badge holders and recipients prompted the Optimism Foundation to rename the initiative to Retrospective Funding Rounds in March 2024. This move aims to clarify its purpose and streamline future allocations. Unlike before, where funds were dispersed to various web3 projects, future rounds will focus exclusively on those building on the OP stack (Upcoming Retro Rounds and Their Design, 2024; RetroPGF Round 3 Feedback Thread, 2023). In the upcoming fourth round, 10 million OP tokens will be distributed to reward Onchain Builders on Optimism (Retro Funding 4: Onchain Builders - Round Details, 2024).
All four Retrospective Funding rounds and their corresponding dates.
The citizen house consists of around a hundred and fifty Citizens (Badge Holders) (source). In the early days of the Citizen House, the ability to become a badgeholder was determined by the OP Foundation by nominating a few web3 public figures (mainly by social status indicators on X) to whom OP token owners (Token House) could delegate their OP too. Currently, however, there are no clear ways to become part of the Citizen House even though there was a public announcement for the increase of Badge Holders (Signaling Intention to Become a Badgeholder, 2024).
The power the Citizen House holds is mainly exercised by being able to nominate projects and vote on which projects will receive OP tokens from the total amount of OP tokens reserved for the Retrospective Funding round. Thereby essentially deciding who receives funding for their work.
Even though many of the Optimism Collective’s funding distribution philosophy is based on one idea ‘it’s easier to determine what was useful than to issue proactive grants for what might be useful.’ (Optimism Mirror, 2022. There are also Proactive Funding possibilities available when applying for foundation missions. These are Intent guided missions where the Optimism Foundation is willing to distribute OP tokens before the completion of the work promised (Builder Ideas | Optimism,2024).
Approaching Governance season 6, the Optimism Collective aims to democratize protocol revenue allocation and enhance transparency by bringing the OP treasury on-chain (The Future of Optimism Governance, 2023). Essentially, all decisions are made by OP Token holders, comprising investors, contributors, and the OP foundation. However, the governance structure emphasizes delegation and temporary power distribution. The current distribution includes a certain number of token holders and voting participants, with the voting supply held by various addresses. While potential governance attack vectors exist, the long-term evolution remains uncertain. Therefore, active participation and informed contribution are encouraged, as the best governors are those most informed. Stay Optimistic!
Optimism is a layer 2 blockchain, which essentially means that it is built on top of Ethereum, the layer 1 blockchain. The reason the Optimism chain (OP Mainnet) is built on top of Ethereum is to borrow its security while providing a higher transactional throughput. The main technological innovation that Optimism is bringing into existence is the path towards creating ‘The Superchain’.
This ‘Superchain’ is a network of various blockchains that run on the OP stack. With this approach, Optimism is trying to solve the scalability problem - a problem that arises when the blockchain can’t handle the amount of transactions being requested on a blockchain, leading to an increase in transaction fees. This has created a slow, expensive, and poor user experience for many solutions built on a blockchain (Sanka & Cheung, 2021). By creating the Superchain Optimism is essentially creating an environment where each initiative has its own blockchain and just posts a summary of the latest blockchain transactions to the main blockchain (layer 1). This distributes the transactional load within the network of blockchains while still utilizing a decentralized security and governance system.
Superchain technicals for newcomers
In layman's terms, one can imagine the Superchain as a solar system where Optimism is the sun and each new blockchain is a planet with its own purpose and solutions. Each planet documents the transactions that happen on its planet and offers a part of its transaction fees to the sun (Optimism Collective) to maintain security over the Superchain system. This Optimistic planetary tax is meant to reward the various nodes securing the network but also generate funds for initiatives that improve the Optimism Collective (its chains, funding programs, and token holders).
The Superchain currently consists of a few chains such as Zora, Base, Frax, Mode, Worldcoin, and Redstone (Superchain Ecosystem | Chains, 2024). The Superchain is constantly growing and adding new members to the network such as Lisk (Lisk,2023).
To foster an aligned Superchain (network of blockchains) Optimism Collective ratified a “Law of Chains”. The Law of Chains, as described in the Ethereum-Optimism Guthub (2023), “is an open neutrality framework that establishes certain protections for participants in the Superchain ecosystem. Its purpose is to promote core principles of user protection, decentralization, and economic autonomy as foundations for the developing Superchain.”
Even though the law of chains is not a legally enforced rule set, the Optimism Collective is the only one that can enforce it. This Law of Chains expects the members of the Superchain to act accordingly, using the Law of Chains as a guiding principle. To understand the exact laws listed, one can view the full Law of Chains → View the Law of Chains.
Working on something aligned with the 4 Intents? Get a Grant!
Check out the Mission Application Guide and then:
Learn more about RetroPGF and how your past contributions may be rewarded for their impact in the future. Check out contribution ideas here!
About the Author:
OP forum: 0xR (Ruben)
X: @0xRRussel
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Sociologist, User Interface, and Experience designer for web3 and beyond. Ruben is an experienced decentralized governance researcher, writer, and UI/UX designer. Who has been around the space since the introduction and usage of DAOs.
Disclaimer: Optimism’s collective is an ever-evolving narrative, and so does its governance structure and systems. We highly recommend doing your own research and staying up to date on the Optimism forum for key formal/informal changes.
gov·ern·ance | ˈɡəvərnəns |: Simply described, Governance is a process of deciding something. There are various types of governance, one of the most known are democracy and dictatorship even if these are at opposite ends of the spectrum it provide a recognizable idea of how decision-making can be organized.
del·e·ga·tion | ˌdeləˈɡāSH(ə)n |: A process where a person or entity is chosen to represent another person or group (source). Many societies of the East and west use representative democracies where political parties are elected to represent the majority.
de·moc·ra·cy | dəˈmäkrəsē |: The control of an organization or group by the majority of its members. For example, a nation-state with a democratic governance system its members are its citizens (passport holders) who periodically decide through a process of voting who is allowed to make decisions on behalf of the choice of the majority.
OP | Oh·Pee: Short for Optimism usually combined with the word token (e.g. OP token) representing a digital cryptocurrency token.
pub·lic good | ˈpəblik ɡo͝od: A non-exclusionary / Non-rivalrous good or service provided for the whole public.
