Throughout the most recent crypto bull run, plenty of new crypto users have interacted with the Ethereum network for the first time and have been surprised to find sluggish, expensive transactions. While the Ethereum blockchain has been very much central to the idea of a web3 crypto internet, the blockchain itself has had trouble keeping up with user demand. This has pushed some founders to build competing blockchains on entirely unique infrastructure, while others in the developer community are focusing their resources on building modular blockchain solutions that sit on top of Ethereum, bundling transactions faster and cheaper while keeping a record of the movements on the central chain.
Most blockchain developers believe these “Layer 2” (L2) solutions are the future of how Ethereum will meet the needs of a rapidly growing network, and venture capitalists have been rushing to stake claims on scaling solution products that they believe could be the central interface for how users interact with decentralized apps, mint NFTs and move money around. Several of these startups have raised at unicorn valuations this year. One such scaling startup, Optimism, has found new backing from Silicon Valley’s most high-profile crypto investors — Paradigm and Andreessen Horowitz.
The Ethereum scaling startup tells TechCrunch they’ve closed a $150 million Series B funding round co-led by Andreessen Horowitz and Paradigm at a $1.65 billion valuation.
The “total value locked” (TVL) on L2 platforms has exploded over the past year with around $5.75 billion currently held on these blockchains, according to tracker L2Beat. Optimism is approaching a half-billion in TVL, though Offchain Labs’ Arbitrum is closing in on nearly $3 billion as the market leader. But unlike some of its competitors, Optimism is actually a Public Benefit Corporation with an open source codebase that has already led to a number of popular forks.
“We made a commitment to the public that we would not take profit from operating centralized parts of the system, so we wanted to remove the financial incentive for ourselves to remain centralized,” Optimism CEO Jinglan Wang tells TechCrunch in an interview. “While we are making revenue, we’re giving all of that revenue back toward funding public goods on Ethereum … We don’t just want to say that we want to be decentralized, we also want to show the community that we’re setting up our own incentives to be compatible with that.”
L2 solutions come in many flavors, the most talked about of which are called Zero-Knowledge (ZK) rollups and Optimistic rollups. Perhaps unsurprisingly, Optimism is based on Optimistic rollup technology, which has generally been seen as a more near-term viable solution due to some of the cryptographic complexities of ZK rollups that are used by other networks made by startups like StarkWare and Matter Labs.
“We want to be future proof so we’re not closing the doors to the possibility of integrating a ZK [Ethereum Virtual Machine] down the line,” Wang says. “We’re also pragmatists and we don’t want our work to toil forever in academic hell — we want people to use it.”
Optimism has been widely available on a public “mainnet” for over a year. Operating in public has its risks and rewards, the company recently paid out a $2 million bug bounty after security researcher Saurik discovered a vulnerability that would allow malicious actors to print money on the network. The bounty was one of the highest paid out by a blockchain startup.
“We’re very into building out in the open, every line of code we write is open source as we write it, and similarly we’re transparent about the vulnerabilities and bugs that are found and disclosed in our network,” Wang says. “We want to build a good security culture around the Optimism community, where [ethical security hackers] know that if they find vulnerabilities, they will be compensated fairly.”
Lately, the company has focused on reducing the complexity of its codebase and promoting close compatibility with code written for Ethereum so that developers don’t have to alter their existing applications to be compatible with Optimism. An upcoming release called “Bedrock” is doubling down on so-called “EVM-equivalence” and should reduce costs on the network substantially, the company said in a blog post.