Optimism Governance

Old Problems, New Tools

Modern technology has drastically changed the way in which humans view and interact with each other. On the world stage, and in a borderless cyberspace, we need new coordination models in order to coexist and thrive as a global tribe.

The vision of DAO technology is to streamline problem-solving and debate between a large number of collaborators — whether on the internet, in your local community, or on an international scale. This is done by:

• Incentivizing participants to share a common mission.
• Innovative voting, delegation, and veto mechanics.
• Using blockchain technology to decrease the potential for human error or hijacking.

Network Governance

Like any traditional nation-state with resources and participants, a DAO uses a governance process to steer the deployment of its resources and achievement of its mission. It’s like a town hall, but asynchronous, global, and partially mediated by code.

📜 Proposal: It begins with a governance proposal and community discussion. The proposal is updated based on public feedback. Anyone can submit a proposal, or critique one. This is the ‘decentralized’ part of ‘DAO’.

🗳️ Vote: The proposal moves to a vote — hosted via the transparent, censorship-resistant process of onchain governance. There is zero human facilitation between vote open and close; It is all mediated by code. This is the ‘autonomous’ part of ‘DAO’ — a quality envisioned to eventually cover the entire governance process.

🛠️ Implementation: The approved proposal is applied to the network, by various incentivized developers if necessary.

Knowledge Check 1

How can onchain governance help to solve interhuman debate?

• [ ] Automation

• [ ] Transparency

• [ ] Censorship-resistance

• [ ] All of the above

The Optimism Network

DAOs like the Optimism Collective are at the frontier of exploring such coordination systems.

In this lesson, we will explore how Optimism is pioneering the DAO vision. We will learn about their mission, and how they’re building new coordination frameworks for humanity.

Our quest will focus on claiming our first voting rights, so we’ll be ready to help build the future of Ethereum and human coordination!

The Optimistic Vision

Optimism is on a mission: to scale Ethereum by building a Layer 2 network. It’s part of the Ethereum ecosystem, but with lower fees and faster transactions — while maintaining Ethereum’s high standard of security. Here are the defining properties:

🏕️ Public Goods: Great emphasis on funding and building onchain public goods. A public good is something that benefits everyone in a community, while one person's use of it doesn't reduce its availability for others. Your free education at Bankless Academy has been made possible through Optimism’s support of public goods!

🧑‍🤝‍🧑 Community Governance: The network is led by its community.

🏠 Free Market: Launched as an extension of not just Ethereum blockspace, but of Ethereum principles. It aims to scale the permissionless, open-source, censorship-resistant marketplace of Ethereum.

Optimism aims to become a “district of cyberspace” that directly provides for — and is governed by — its citizens!

Knowledge Check 2

Which of the following is NOT a public good?

• [ ] Education

• [ ] The Internet

• [ ] Ethereum

• [ ] A Centralized Exchange

Progressive Decentralization

Many great blockchain projects begin with a centralized group. This gives the project crucial focus in building and spending, but a DAO needs more than promises of decentralization. On Optimism, the founders, network, and community are thought of as follows:

• 🏦 Optimism Foundation: The network founders. They kickstart the ecosystem, provide initial resources, and act as community steward, before eventually dissolving.
• 🌐 Optimism Network: The autonomous code on the blockchain — the smart contracts and processing of user input.
• 👬 Optimism Collective: The governing community; a diverse set of global participants. They are responsible for the long term ownership and management of the ecosystem. The term ‘DAO’ covers both the Collective and the Network.

Legal checks and balances, such as the Collective’s ability to remove members of the Foundation, ensure slow transfer of network ownership to the community.

Knowledge Check 3

True or false? The Optimism Foundation will continue to guide the Optimism Collective over the network’s lifetime.

• [ ] True

• [ ] False

A New Economy

At the center of the Optimism L2 economy is the ‘Optimistic Flywheel’. This economic cycle generates revenue, network growth, and progress towards Optimism’s mission.

1. Users and dApps demand network blockspace.
2. The network generates revenue via transaction fees.
3. A portion of these taxes are awarded to builders providing impactful public goods infrastructure.
4. Network users gain access to free resources and services, increasing the value of OP blockspace.

With more valuable onchain infrastructure, demand for Optimism blockspace increases, and the cycle continues!

Incentivizing Public Goods

As you can see, public goods infrastructure is at the heart of Optimism. Yet selecting projects worthy of funding isn’t simple.

Here, Optimism takes an ‘Impact = Profit’ approach. Impact, however, is difficult to anticipate. Rather than making predictions, the funding body periodically looks over existing projects and assigns retroactive funding based on historic performance.

As Vitalik Buterin said, “It’s easier to agree on what was useful than what will be useful.”

This distribution model is known as ‘Retroactive Public Goods Funding’, or ‘RetroPGF’. This funding mechanism incentivizes optimistic thinkers to build public goods that are of service to humanity. It liberates us from the value-extraction mindset of traditional capitalist economies.

Ether’s Phoenix

Optimism calls this effect ‘Ether’s Phoenix’: an “angel reaching backwards in time, rewarding those who summon it.”

“It is an algorithm that rewards the early cooperators who created conditions for public goods funding to prosper. It is a future where early investment in public goods is recognized. It is also a mindset: that optimism prevails, that better systems are possible, and that humankind will be rewarded for its cooperative revolution.”

— The Optimism Foundation

Knowledge Check 4

How is Optimism incentivizing community-focused economics?

• [ ] By rewarding all Optimism projects with retroactive funding.

• [ ] By providing a free market, but on the blockchain.

• [ ] By systemically funding business models that improve the lives of all network users.

• [ ] All of the above.

Introducing the Governing Houses

There are two houses that make up the Optimism Collective, each with independent and shared responsibilities in running the network.

The Token House is responsible for managing network upgrades, incentives, and treasury. Its stakeholder structure incentivizes growth of the network economy, and generates stakeholder value. The house is also responsible for preserving decentralization — preventing capture of the network economy.

The Citizens’ House allocates RetroPGF resources to community projects, according to the ‘Impact = Profit’ ethos, and helps decide the parameters of citizenship. The house is incentivized to improve network quality of life, by funding public goods that improve the value of citizenship!

Both houses maintain network balance through their duties, voting mechanics, and veto abilities. Let’s take a closer look.

Knowledge Check 5

How does the Citizens’ House differ from the Token House?

• [ ] The Citizens’ House is the only house with veto abilities.

• [ ] The Citizens’ House allocates RetroPGF rewards.

• [ ] The Citizens’ House leads network decentralization.

• [ ] All of the above.

The Token House

The Token House maintains the economy and defenses of the Optimism Network.

Duties include:

• ⚒️ Review and approval of upgrades to network mechanics.
• ⛓️ Selection of network block producers.
• 📈 Allocation of revenue, using collected transaction fees to fuel network growth.

To protect the network, the Citizens’ House has the right to veto any proposal under the above categories.

The Token House also has the ability to veto any proposal submitted by the Citizens’ House, or the Optimism Foundation, which is seen to be reducing rights of token holders.

Token House: Joining, Voting, Delegating

📝 Joining: the Token House is done via purchasing and holding OP tokens. These are ERC-20 tokens, and are therefore transferrable; They can be bought and sold on CEXs, Optimism DEXs, or sent between friends. OP tokens are not available on other networks.

🗳️ Voting: Voting power scales based on how many tokens are held.

The Token House follows a five week voting cycle:

• Week 1-3: Proposal submission, review, and feedback.
• Week 4-5: Voting.

📢 Delegating: Many users prefer to delegate their voting power to other token holders who they feel best represent the community’s interests. This is a great way to have an impact on the ecosystem without having to read every proposal that enters voting. Delegation does not affect token ownership — delegated OP tokens stay in your wallet.

Anyone can become a Token House delegate on Optimism, representing a group of friends, a community, or even a university’s blockchain club! Active delegates are often rewarded by the community.

A Note on Token Distribution…

Network governance is only as democratic as its initial token distribution. We should always ask “who received voting power in the first place?” and “how much did they receive?”.

Check out the OP distribution plan to see how the Optimism Foundation has allocated initial governance power, in service of balanced stakeholder representation.

Knowledge Check 6

How does the Token House protect the network from attack?

• [ ] By selecting a diverse set of network block producers.

• [ ] By vetoing Optimism Foundation proposals seen to be reducing token holder rights.

• [ ] By carefully reviewing network upgrade proposals.

• [ ] All of the above.

The Citizens’ House

The Citizens’ House conducts the growth of public infrastructure on the Optimism Network. Its primary focus is managing Retroactive Public Goods Funding.

Duties include:

• 🎯 Defining RetroPGF metrics and impact criteria for measuring project performance.
• 🔍 Research and allocation of RetroPGF to community projects which meet the guidelines.
• 👬 Selection of new citizens to help govern the Citizens’ House, and balance Token House perspective. The Token House has veto rights for this type of proposal.

The Citizens’ House also ensures that Token House proposals are mission-aligned, using veto mechanics to waive unaligned changes to the network.

Citizens’ House: Joining, Voting, Delegating

📝 Joining: The Citizens’ House currently adds members by invitation, to slowly scale and refine its processes. Membership is marked by holding a ‘Citizen Badge’.

The specifics of invitations change seasonally based on experimentation by the Optimism Foundation:

• Current Citizens may be granted an additional invitation, to be shared with someone they see as a great addition to the network.
• Previous RetroPGF recipients have been granted the opportunity to select one community member for Citizen status.
• The Optimism Foundation has issued Citizenship to project builders using the network.

As the scaling methods are refined, growth will be automated via onchain governance.

🗳️ Voting: Each Citizen has a single vote. Their voting power cannot be transferred or delegated. This protects against gathering of House power under a small number of Citizens.

At present, RetroPGF distribution occurs roughly twice per year.

Knowledge Check 7

How does the Citizens’ House protect the network from attack?

• [ ] By expanding the number of Citizens’ House members.

• [ ] By vetoing unaligned Token House proposals.

• [ ] Both of the above.

Governance Seasons

Optimism takes an iterative approach to governance, using a calendar structure referred to as ‘Seasons’.

By moving between periods of active governance and reflection, participants gain firsthand experience followed by digestion and discussion of current governance practices. The model is then improved by the Optimism Foundation, and the next season begins.

On Optimism a season lasts roughly three months, followed by a reflection period of similar length.

These thoughtful feedback loops, built throughout Optimism’s systems, are incredibly important for building governance best practices in DAO communities.

Now… Think Even Bigger!

We’re almost ready to govern on Optimism 🔴. There’s one last thing to mention.

The Optimistic Vision doesn’t stop at a single L2 blockchain. As result of the ability to fork a blockchain, this is a cloneable governance experiment. This technology is built to be scaled across multiple L2s — and even into real world governance scenarios. Optimism calls this ‘The Superchain’.

Coinbase, a prominent CEX, has already forked and started contributing to this open source initiative, through the Base 🔵 L2 blockchain. This collaborative pooling of development resources increases infrastructure evolution, while funneling L2 transaction fees towards Optimism’s ‘Impact = Profit’ ethos.

RetroPGF rewards now include profits from Base 🔵 transaction fees — which means more funding for public goods!

Shaping an Optimistic Future

History has always been paved by the optimists of humanity — those that dared to think big, and act to achieve their vision.

By getting involved in innovative communities, using trustless and fair governance systems, we are trailblazing the future of human coordination. We are building a world where humanity can thrive in local, global, and online systems. It’s time to start our Optimism governance journey.

Today’s quest is to join the Token House and delegate our OP tokens.

While the Citizens’ House develops its onboarding procedures, we can begin our Citizen journey by participating in conversation on the Optimism community forums.