Optimism unveils a buyback program for OP tokens

The Optimism Foundation on Thursday announced a proposal to buy back OP tokens starting in February. The firm announced that it plans to allocate 50% of Superchain’s January revenue to repurchase OP tokens.

The foundation stated that using half of Superchain’s revenue was optimal to reserve flexibility for other ETH use cases. It added that implementing the buyback program aims to align the OP token with the success of the Superchain. 

Optimism seeks to align the OP token with Superchain’s success

Optimism believes that the initiative will transition OP from a pure governance token to a token aligned with Superchain’s growth. Superchain activity aims to drive buybacks of OP while the token still retains important governance rights.

The Ethereum-based platform said transactions across every OP Chain will expand the base where buybacks operate. Optimism argued that there will be more structural demand as blockspace is utilized across the Superchain, leading to increased flows into OP.

The program will run for 12 months and will include the revenue contribution of Superchain’s OP Chains, such as Uniswap, Base, Soneium, OP Mainnet, Ink, and World Chain. Optimism acknowledged that it earns revenue from Superchain and that the chains contribute a portion of their sequencer revenue back to the company.

The decentralized infrastructure platform also said the proposal aims to empower the Foundation to manage Sequencer ETH actively. The Foundation collected 5,868 ETH in revenue last year. Optimism compared the program to last year’s Superchain revenue, noting that it would have resulted in roughly 2,000 ETH used, or around $8 million in OP at current prices. The firm also revealed that 100% of the revenue has been dedicated to a treasury overseen by Optimism governance. 

Optimism plans to use Protocol Upgrade 18 to ensure all sequencer revenue is collected on-chain. The Collective treasury will hold the purchased OP together with the remaining sequencer ETH. On-chain data revealed that the Collective has earned 80.03 ETH in yield as of Tuesday.

Optimism revealed that Superchain garnered 61.4% of the L2 fee market share. The network of OP stack chains also processes about 13% of all crypto transactions.

Optimism said the proposal will enable the Foundation to manage the remaining ETH treasury on behalf of the Optimism Collective. The firm also acknowledged that the initiative will generate yield, boost liquidity, and support the Superchain ecosystem. 

The Cayman Islands foundation company further noted that the program will reduce undue governance overhead that has prevented Optimism from effectively managing the ETH treasury. The firm said it will ensure governance retains oversight over capital allocation parameters to ensure stakeholders’ accountability.

Optimism provides buyback specifications 

Optimism confirmed that it will collaborate with a third-party OTC provider once the program gets approved. The OTC provider will execute conversions of ETH to OP on a monthly basis. 

The firm stated that it will partner with an OTC provider, as other DEX and CEX platforms don’t meet the required liquidity. The report also revealed that the OTC provider will convert ETH to OP within a predetermined window each month, regardless of conversion prices.

The Foundation gave scenarios where conversions for one month will be paused and rolled over to the next month. The rollover will occur when the Collective fails to generate approximately $200,000 in revenue in a month. 

If the OTC provider fails to execute the conversion within the maximum allowable fee spread, conversions will also be moved to the next month. The Foundation and the OTC provider will determine the fee spread in advance.

The Foundation revealed that it will execute the initial operation of the program to eliminate any discretion. The firm plans to move the mechanism more on-chain over time to allow executions to take place without the Foundation.

Optimism plans to direct repurchased tokens to a burn mechanism in the future. The firm also plans to deploy the tokens to fund the expansion of its ecosystem. The tokens will also be distributed to tokenholders who participate in securing the network throughout this year.

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