OP (OP) tokenomics

Optimism (OP) is the native governance and incentive token for the Optimism Collective, a bicameral system designed to reward public goods and build a sustainable future for the Ethereum ecosystem. The token economics are structured to create a self-reinforcing feedback loop where network revenue is reinvested into the ecosystem to drive further demand for blockspace.

Issuance Mechanism

At genesis, the initial total supply of OP was 4,294,967,296 tokens. The token supply is designed to be inflationary, with the rate of inflation determined and approved by the Optimism Collective's governance.

A significant recent development in the issuance and supply model is a proposal by the Optimism Foundation to implement OP token buybacks. This plan suggests using 50% of incoming Superchain sequencer revenue for monthly buybacks. This mechanism aims to shift the token's role toward one tied to aggregate network activity, creating a durable alignment between network usage and token economics.

Allocation Mechanism

The OP token supply is distributed across several key categories to balance the interests of users, contributors, and investors while prioritizing ecosystem growth.

Ecosystem Fund Breakdown

The 25% allocated to the Ecosystem Fund is further subdivided into:

• Governance Fund (5.4%): Distributed to projects on Optimism via governance votes.
• Partner Fund (5.4%): Strategically distributed by the Optimism Foundation.
• Seed Fund (5.4%): Focused on supporting early-stage projects (0 to 1).
• Unallocated Reserves (8.8%): Reserved for future programs determined by the Collective.

Usage and Incentive Mechanism

The OP token serves two primary functions within the network:

1. Governance: OP holders participate in the Token House, where they vote on protocol upgrades, inflation adjustments, treasury appropriations, and the removal of Foundation Directors. To participate, holders must delegate their voting power to themselves or a representative.
2. Incentives: The token is used to drive growth through several programs:
   • RetroPGF: This is the primary mechanism for rewarding public goods. It uses sequencer revenue and a dedicated token reserve to fund contributors based on the impact they have already provided.
   • Governance Fund Grants: Projects can apply for OP grants to incentivize their own users and grow their applications on the network.
   • Airdrops: Multiple waves of airdrops are used to distribute tokens to active and helpful community members.

Locking Mechanism and Unlocking Time

Optimism employs a structured unlocking schedule to ensure long-term alignment and prevent market oversaturation.

• Core Contributors and Investors: Tokens allocated to these groups were subject to an initial one-year lockup starting from the token's circulation date on May 31, 2022. Following this one-year "cliff," the tokens began a linear vesting period.
• Community Allocations:
  • User Airdrops: A portion (5% for Airdrop #1) was unlocked early, while the remaining 14% is held in reserve for future distributions.
  • Ecosystem Fund and RetroPGF: These tokens are unlocked progressively over a 4-year period. By the end of Year 4, the total supply is intended to be fully unlocked and distributed across all categories.

The unlocking schedule is designed so that the community-controlled portions (Ecosystem Fund and RetroPGF) eventually constitute the largest share of the circulating supply, reinforcing the decentralized nature of the network.