Author: Azuma
On August 25th, Optimism and Base jointly announced a governance and revenue sharing agreement that defines the different governance collaboration modes between Optimism and Base in the short and long term, as well as their economic interactions.
If before this announcement, the relationship between Optimism and Base was limited to the latter using the former’s technology stack (OP Stack), which can be considered a soft form of collaboration, from today onwards, the two parties will be deeply bound in terms of governance and revenue, and can even be seen as “one family” within the same ecosystem.
Governance Aspect
Firstly, let’s talk about governance. Due to Optimism having designed a more comprehensive governance system when issuing OP, this part mainly concerns Base, which does not have governance tokens (as mentioned before, there will be no token issuance).
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In terms of specific governance forms, there will be different collaboration modes for the short and long term.
Starting with the short term, the upgrade of the current Base network depends on a 2/2 multisignature contract, with the signing authority split between Optimism and Base. In the event of an emergency, both parties will take control, or Optimism will execute the upgrade after completing governance decisions.
In simple terms, although this form appears to be a joint decision between the two parties, it relies more on the willingness to cooperate between them. If there is discord between the parties (although the likelihood is low), the 2/2 multisignature will not reach a consensus, and the Base upgrade will be stagnant.
In the long term, as one of the “superchains” adopting the OP Stack, Base will be more firmly bound to Optimism through the “Law of Chains” governance framework proposed by Optimism.
The so-called “Law of Chains” refers to a governance framework that aims to manage all “superchains” (including OP Mainnet, Base, and other OP Stack blockchains) and is planned to be implemented in early 2024.
According to the agreement between Optimism and Base, after the implementation of the “Law of Chains”, both parties will transfer multisignature governance authority to a Security Council composed of independent community members distributed globally. This council will be responsible not only for Base upgrades but also for OP Mainnet and other OP Stack blockchains.
Conversely, as Base’s governance will depend entirely on Optimism in the future, it will also have some authority in the governance of the entire council. Optimism will grant Base a certain amount of OP shares (discussed in detail in the revenue aspect below), allowing Base to participate in the governance of the council. However, due to restrictions, this voting authority is limited to no more than 9% of the total voting authority.
Revenue Aspect
Compared to the more abstract governance aspect, the collaboration between the two parties in terms of revenue is more intuitive.
According to the agreement, Base will pay 2.5% of the revenue from Optimism’s sequencer (total revenue on Layer 2) or 15% of the profits (total revenue minus the cost of submitting data to Layer 1), whichever is higher; in return, Base can obtain “up to 118 million OP tokens” (approximately 2.75% of the total supply) over the next six years, allowing it to exercise some of the previously mentioned permissions in governance.
In simple terms, there will be a direct economic exchange between the two parties. Optimism will need to pay Base a maximum of 118 million OP tokens over six years, and Base will need to provide a permanent revenue share to Optimism.
To calculate which party will pay more or less, let’s do some calculations. The current value of 118 million OP tokens is approximately 183 million US dollars. According to Dune’s data, Base’s sequencer revenue in the past month (including the pre-launch period) is approximately 2.6 million US dollars. Since there is no profit data available, we can estimate that Base needs to share 780,000 US dollars with Optimism annually (2.6 million * 12 * 2.5%).
However, it is worth noting that due to the early stage of Base’s ecosystem and the fact that the network currently only has sequencers operated by the team, these factors will have a certain impact on Base’s future revenue situation.
From Optimism’s perspective, although the number of OP tokens it pays is much higher than the revenue share feedback it receives from Base in absolute terms, based on the positive expectation that Base will continue to expand in the future, this “transaction” can still bring considerable returns in the long run.
I personally tend to approve the foresight of this “transaction.” To give an inappropriate example, before the income sharing agreement was determined, the relationship between Optimism and Base was similar to the relationship between Cosmos and Terra. Terra adopted the Cosmos SDK issuance (here it is OP Stack) and earned a lot of value through UST “magic” before 2022, but this value capture cannot be feedbacked to Cosmos and ATOM.
With the revenue from Base, Optimism will receive a continuous inflow of income, which is obviously beneficial to the project’s fundamentals.
Some OP token holders may be concerned about the potential selling pressure of 118 million OP tokens, but this seems unnecessary.
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First, Base has mentioned that this portion of OP tokens will mainly be used for governance purposes (but there is no mention of a binding constraint);
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Second, these OP tokens will be paid over six years, not all at once;
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Third, these OP tokens will be paid by the Optimism Foundation to incentivize the development of the Optimism ecosystem.In other words, these tokens are meant to be spent. What OP token holders should be concerned about is not whether this money will be spent, but whether it is worth it. I tend to think that exchanging up to 2.75% of the OP token supply for a permanent support is worth it.
As for Base, this OP income also helps to solve the financial problems of Base operations (including developer rewards, ecological incentives, business development, etc.). Previously, the operation of Base relied to a large extent on the implicit support of Coinbase. However, due to compliance considerations (there have been voices claiming that the relationship between Coinbase and Base may be involved in violations), Coinbase is likely to make a clear separation from Base at the operational level in the future, and Base will also need to have its own financial source.
From this perspective, this “transaction” may be a win-win choice that meets the needs of both parties.
“Super Chain” Blueprint, Unveiling the Veil
Overall, the cooperation agreement announced today by Optimism and Base means that the cooperation between the two has entered a new level. The closeness of this cooperative relationship is even difficult to find a similar case in industry history.
Looking to the longer-term future, by completing a deep integration with Base, one of the most important “super chains”, Optimism’s “super chain” blueprint has finally been unveiled: “Law of Chains” collaborative governance – Optimism expands the ecosystem and promotes decentralization through the distribution of OP – ecological entities will continuously give back to the parent entity with their income, benefiting the parent entity’s fundamentals – attracting more entities… This positive cycle may become a flywheel to accelerate the expansion of the Optimism ecosystem.
Today’s Base is just the beginning, and we may see more projects join this process in the future, such as Zora, Celo, PGN, Debank, etc.
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