Optimism launched its new token in June 2022. With their new token launched, it raises some interesting questions about the future of the Optimism token. In this article, we’ll go over the tokenomics of Optimism, including its utility, inflation, and other token mechanics.

Optimism Token Distribution

The Optimism Foundation has divided the token distribution into 6 sections.5% was initially used as an airdrop to users and early adopters of the Optimistic protocol. 14% of the total supply is going into future airdrops, 19% is going to core contributors, 20% is going into a Retroactive public-goods fund and 17% is going to initial investors. 25% is going to create an ecosystem fund. Below is a chart to illustrate the total token distribution for Optimism.

Of the total 25% ecosystem fund, 5.4% is going to a governance fund, 5.4% Partner Fund 5.4% Seed fund, and 8.8% unallocated. The unallocated portion is thought to be for future planning and implementation, though it is not certain. The purpose of the ecosystem fund is to grow the Optimism ecosystem by providing financial support and incentives to projects that are building on Optimism.

The Retroactive Public Goods Funding allocation will be funded by both the initial 20% token fund and by funds collected from transaction fees that are collected as sequencer revenue. The Retroactive public-goods fund is a fund created to create an exit for startups that build on Optimism. This is an incentive model that allows startups to hire the best while trying to create a positive product in the Optimism ecosystem. It’s intended to fund an exit for startups that are nonprofit or free and open source, which provide a positive addition to the ecosystem.

Optimism Token Inflation and Release Schedule

Optimism has 2% yearly inflation. The initial total supply of Optimism will be 4,294,967,296 Tokens. 30% of the initial tokens will be unlocked in the first year, which includes the 5% initial airdrop and the 25% combined Ecosystem fund + RetroPG fund.

The release schedule for Optimism is not fixed and is dependent on the governance of Optimism. However, this is what the release schedule is estimated to be like.

Initial investors will get their funds released after the first year is finished since tokens were initially released. They get their tokens released starting in June 2023. Core contributors also get some of their tokens released starting in June 2023. More of their token allocation gets unlocked as years 2, 3 and, year 4 start and end.

What is the Utility of Optimism Token?

Optimism tokens are used for governance. The Citizen’s House, an organization composed of community members of Optimism, votes every quarter to distribute funds to individuals, projects and, teams that want to support the Optimism Ecosystem. They can also be used to interact with some applications in the Optimism Ecosystem, as we discuss later.

Tokens give their owners special voting privileges, which can be used to vote for decisions that the Optimism Foundation and the Citizen’s House take. Token holders can vote on the direction which Optimism, as an ecosystem takes.

Tokens can be delegated to other institutions or people to accumulate a sizable position of power. The delegate can use this power to vote in the direction that they believe.

Optimism tokens are currently not used to pay for transaction fees. They can be used to interact with the ecosystem projects. For example, you may use Optimism tokens as collateral in DeFi applications. OP tokens may also be used to supply liquidity and generate yields in various projects.

Do Optimism Tokens Get Burned?

Optimism currently has no function to burn tokens. Instead, 2% of all tokens get minted every year. Optimism has a 2% inflation rate. In the future, the Optimism Foundation may implement an update to burn tokens, though that is speculation.

Since Ethereum is used to pay for transactions on Optimism, Ethereum is the main collection of fees. The Sequencer collects these fees and transfers them to the Optimism Foundation, where they add them to the RetroPG fund. These funds, which are acquired, are not burnt but redistributed to fund projects and create incentives for people to build on the Optimism ecosystem.