On-Chain Markets Report by Pedro Negron, IntoTheBlock
Optimism’s release of the OP token has led to an increase in activity in the network, as speculation grows about its price and future airdrops. By looking at other Layer 2 tokens and sidechains, this piece examines the potential growth and valuation of Optimism following the release of the OP token.
Boba Network and Metis Andromeda are two competing universal Ethereum Layer 2 chains which use optimistic rollup technology. Both Layer 2 chains have already launched their governance tokens and recorded a significant increase in their total value locked (TVL).
Similar scenarios happened with Ethereum Virtual Machine sidechains. Since their tokens were already live due to validation purposes, the sidechains bootstrap liquidity by offering liquidity mining incentives. The chart below shows a historical comparison.
Despite their similarities, sidechains and Layer 2s are not apples to apples. Due to the lack of historical data on token airdrops and incentives campaigns on Layer 2 ecosystems, these comparisons in particular bring meaningful data, even though they may not paint the full picture.
As noticed in the graph, Boba Networks launched their governance token, Boba, via an airdrop to OMG token holders, which was decided on a snapshot that took place November 12, 2021. Since then Boba’s TVL increased 1,070% to $59.2 million.
A similar story happened with Metis Andromeda when it managed to bootstrap liquidity on the chain with the launch of their DAC (Decentralized Autonomous Corporation). High staking APY were offered through it, as a result their TVL increased 9900% to $164.7 million. These token launch scenarios put Optimism’s possible TVL between $5.6 billion in Boba’s case and $52.3 billion on Metis’ more far-fetched scenario.
In the case of side chains, Polygon, Fantom and Avalanche managed to increase their TVL from the start of their incentives program to its current one in 2,762%, 629% and 6,402% respectively. Using these numbers to represent the different scenarios in Optimism’s case, puts the TVL at $14.5 billion for Polygon, $3.3 billion for Fantom, and $33.6 billion for Avalanche.
Importantly, both Layer 2 chains had very low liquidity numbers before bootstrapping liquidity. These projections probably overestimate the growth Optimism will experience following the release of OP as it already has significantly higher TVL than these networks, but provide an idea of the potential growth to come.
There are several ways in which one can arrive at the estimation of a token price before its public release. These ratios are assumptions based on similar chains. Two relevant approaches to assess the OP valuation are through Market Capitalization/TVL ratio and the Price/ Sales ratio.
The Market Cap/ TVL ratio takes the circulating supply of a token times its price and divides it by the current TVL. The chart above shows the historical ratios of the Polygon, Avalanche, Fantom sidechains, and the Boba, Metis Layer 2 solutions. In theory, the lower this ratio the more undervalued the token is. That means there is more economic activity in the chain and more value deposited into its dApps relative to its valuation.
Based on the percentage of the circulating supply of tokens in each chain and the according ratio, OP’s price is projected. The estimate for the token price using sidechains ratios was $0.33 for Polygon, $0.41 for Avalanche and $0.08 for Fantom.
For the Layer 2 solutions, the estimate seems to be more precise because their circulating supply is closer to the one Optimism announced. Their numbers were $1.17 for Boba and $0.45 for Metis. This would provide a fully diluted valuation estimated for the OP token of $325 millions for Fantom and $5 billions for Boba.
For the Price/ Sales Ratio the following formula is used: P/S Ratio = MarketCap/ (sevenDay Avg. Fee * 365). Through this process Optimism’s Market Cap for the circulating supply of tokens is obtained. Fully diluted value is needed to acquire the possible OP token price.
For this, market cap obtained is multiplied in accordance to the percentage of circulating supply tokens for each chain. The result is divided by the number of OP tokens announced to get the price of each one of them.
The fully diluted valuations were $10.54 billion for Polygon, $3.49 billion for Avalanche and $2.98 billion for Fantom. Using these estimates the OP token price for Polygon, Avalanche and Fantom would be $2.45, $0.81 and $0.69 respectively per token.
Currently Optimism ranks third by TVL in the Layer 2 chains ecosystem. The release of the Optimism Collective signals future growth for the Layer 2 solutions ecosystem. Optimism’s TVL and OP token prices taken above are just estimates and this could be affected by several other factors not accounted for in the calculations.
Overall, the release of the OP token and the prospect of future airdrops and incentives are likely to grow the network’s activity and along with it its valuation.