Author: @0xMorty, Master Degen from GN Degens

To start with, the governance model of $OP is quite a controversial topic these days. I have been feeling the urge from the bottom of my heart that I really want to talk about it. The problem that many people criticize about $ENS is that it has no substantive use cases other than governance. The previous sharp rise of $ENS came from people’s affirmation of protocol products and the competition for $ENS governance rights. The same goes for $UNI. Because these two dAPPs are good enough - ENS has become a very important part of the Ethereum ecosystem, and Uniswap has reached $7.58 billion just in v3 transactions in the past 7 days (in the case of bad market conditions). And that's what motivated the whales to buy them in the first place.

So, what about $OP?

As a blockchain network, Optimism has a totally different governance logic from dAPPs. The security of dAPPs is guaranteed by Ethereum. Governance tokens will be used to participate in the governance of the protocol. However, as the governance token of the network, $OP will not only participate in the governance of the Optimism network, but also participate in influencing the Optimism Sequence and the operation of the consensus network. But for now, it's still too early.

Next, let’s talk about how Optimism’s governance is accomplished, and for what purpose.

Let’s start with the conclusion: Optimism has a very high focus on governance. "Impact = Profit" is the most important spirit of the Optimism ecosystem. They hope to achieve the process of "governance - gain influence - ecological user growth - profit" routine. This means that the purpose of Optimism is to allow the governance rights of $OP holders to obtain more ecological profits in the future. This is a flywheel effect. It will be difficult to rotate in the early stage, but with the development in the later stage, the flywheel will rotate faster and faster. The feature of Optimism is that they are working hard to eliminate the influence of massive token holders such as whales/institutions on governance fairness, and promote the growth of retail participation in the long-term governance work and network expansion.

Let's get to the point:

Optimism mentioned at the beginning of "This Governance Will Self Destruct" that the Optimism Collective is a large-scale governance experiment, hoping to establish a more unified network by reducing the influence of the whales in governance and funding public goods. Optimism's vision is ultimately a network that is "built for, and governed by, its citizens".

How is it done? (The references in this section are from the $OP official documents)

Part 1 - Working Constitution & Bedrock Constitution

Regarding constitution-making, the initial idea of the constitution is called the progressive "Working Constitution", and its regulations are scalable and would be updated as future challenges change. Practice is the only criterion for testing truth, and the Optimism Committee will build on a series of governance experiments to gain insight into ecological balance and power dynamics, allow for changes, and encourage practices. After a period of up to four years of experimentation, Optimism will launch the Bedrock Constitution, which will serve as the basis for future governance. In other words, the Working Constitution will write a guiding Bedrock Constitution within four years of practice, based on real situations.

It is worth mentioning that the current rollup architecture of Optimism is also called Bedrock, which is one of the development stages of the Optimism network and was upgraded in May this year. The purpose of the Bedrock upgrade is to significantly reduce transaction fees and increase network throughput.

Part 2 - The Equal Coexistence between $OP Holders & Optimism Citizens

I want to bring up the concept of “One Chain, Two Governance” (Token House and Citizens House) here. Its main purpose is to balance the short-term incentives and long-term vision of Optimism. The governance in this regard can refer to Curve's governance structure - by binding the governance power strongly to LP revenue, and further it to binding the governance power with protocol revenue sharing and token locking. Why is everyone a fan of the ve (vote-escrow) model now? Because this model can combine short-term incentives with long-term vision. Although it cannot solve the fundamental pain point of decentralized governance, it is nevertheless a good solution.

The figure below is easy to understand. Optimism divides the protocol governance into two sections, Token House and Citizens House. My understanding is that the holders in the Token House are fluid, and the citizenship rights conferred by the Citizens House are fixed. Token House will make decisions on the economy (inflation rate), protocol upgrades, and the use of treasury funds through votes by token holders.

Citizens House (made up of people who have been entrusted with citizenship) is responsible for allocating retroactive public goods funds, which will give citizens more rights in the future. Network parameters and granting citizenship are decided by Token House and Citizens House together.

Part 3 - The Housekeeper of Optimism’s Ecosystem: Optimism Foundation

The Optimism Foundation's influence on Optimism will spread out over time. Its main functions are:

• Take the lead at the beginning of governance;
• Allocate treasury assets to fund public goods, incentivize participants in the Optimism ecosystem, and promote the development of Optimism;
• Amend the constitution (mentioned in point 1);

If the Optimism Foundation directors don’t do well enough, Token House can remove them, or veto their constitutional changes - if the changes affect the interests of $OP holders.

Finally, it is worth mentioning that $OP holders can entrust others to help them participate in the governance, which is commonly seen. But I noticed that it labels the delegates. For example, if we are interested in "DAOs", we can click and choose someone with influence or experience in the DAO field as our voting agent. This allows us to easily select people who share our interests, with the Voters-Members-House logic.

Going back to the first conclusion, the purpose of Optimism is to reduce the influence of whales on governance through the joint governance of Token House and Citizens House, that is, the control of whales over the protocol/network. Optimism intends to increase the recognition of governance rights by retail investors holding $OP by eliminating such effects.

Finally, although the $OP token has not performed well in terms of its price, the attempt made by Optimism is still worth our consideration. However, the problems shown by the Optimism team during the airdrop claim period also need our attention. In the words of Mr. Liu Feng: "The OP team is very experienced in gaslighting investors and developers, and everything they do is like an 8-year-old."

As for when to buy in $OP, I have no suggestions. Everything I said is not financial advice, DYOR.

Special thanks to Mr. Pan @nake13 for supporting this article.

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Statements made in the article are the author's personal opinions and do not represent the standpoint of GN Degens. No financial advice is made. Any similarity is mere coincidence.

ALL RIGHTS RESERVED TO GN DEGENS.

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