Question:

The price of Optimism (OP) fell sharply in early November, dropping from highs above $1.30 on November 6 to as low as $0.79 on November 9. In the weeks since, prices have been on the rise, with OP hit $1.19 on December 14.

Analyze the network and diagnose some of the possible reasons for the sudden drop, and slow climb, of OP price in recent weeks. Are there any notable trends in users, transactions, or any other metrics that could explain these events? Note any patterns or outliers you see.

Overview of analysis:

In this investigation, the recent drop on OP price has been determined and this investigation divided into three parts:

• Track the price of OP and compare it with other popular tokens
• Track the flow of OP into the CEXs
• Trading activity of OP token

This analysis is done since the start of November 1, 2022 and the various aspects of OP drop can be seen from the following parts.

Methodology:

The data provided by Flipside has been used to handle this analysis.

This following steps have been used to handle this investigation:

• Step 1: Price analysis
  • Metrics→ Over time price, daily price change in %, total price drop in %
• Step 2: $OP flow onto CEXs:
  • Metrics→ Inflow/outflow volume, Net flow, Distinct senders and receivers
  • CEXs→ from Optimism.core.dim_labels where label_type='cex'
• Step 3: Trade analysis of OP
  • Metrics→ Swap count, unique swappers, volume of swap, swap type (from and to), Average swap volume
• Step 4: Draw conclusion by aggregating outcomes of previous steps

About Optimism blockchain and OP:

The Optimism Network or Optimism is a second layer solution, which was created to solve the scalability problems of the Ethereum network. Optimism in the word means optimism and Optimizm network was created based on this approach. The Optimism network uses Optimisitic Rollup to increase scalability. In this solution, the Optimism network collects and executes transactions in its network and sends them in a compressed form to the Ethereum network, causing the scalability, speed of transactions and their fees to be significantly reduced.

In the optimistic approach that the Optimism network uses, all transactions that are validated by network validators are considered valid and processed. This process ensures that transactions are not validated separately and their processing time is greatly reduced. Also, each member of the network or validators has up to one week to check the set of transactions and if a fake transaction is found, inform the network and receive a reward.

The native token of this network is called OP and its main use will be participation in governance processes and the ability to create and manage multi-signature accounts in the Optimism network.

Part 1: Track OP price

Findings:

The first part of this analysis investigate on the price of OP and follows the trends of price deviation:

• The OP has been experienced drop from $1.30 on November 6 to as low as $0.79 on November 9. Also, the min, max and average daily price validate the price fluctuations of OP since November 2022.
• The price deviation on daily basis demonstrated that the highest price drop occurred on November 9 with over 28% drop.
• The 7 and 15 day moving average price of OP currency reveal the slope of price drop averagely and after that followed the increasing pattern since third week of December.
• The correlation between OP and ETH price can be seen accordingly.

Part 3: Trade analysis of OP

Part 2: Track OP transfer into CEXs

Findings:

Now lets see how transfer volume of OP token onto CEXs have been affected in that time period (November 1st, 2022):

• It can be seen that on that time period users withdraw their OP from CEXs and the highest outflow from CEXs occurred on November 12 with over 19 million OP.
• The total volume and count of transfers from CEXs validate the previous comment.
• The net flow of OP onto CEXs reveals that the price of OP has positive interdependency with net flow of OP onto CEXs.
• In the final chart of this part, the bridge volume between Optimism and Ethereum has been evaluated and according to the outcomes, the USD value of bridge from Optimism to Ethereum is more than other path by far since start of November.

Findings:

This part contains the trade analysis of OP currency:

• Users swap from OP into other tokens over the selected time period and the volume of OP for “Swap from OP” action is far larger than “Swap to OP” action.
• Over 9 million OP have been have been swapped from OP into other tokens on November 9 and its the highest volume since November 1st.
• The average volume of swap over time reveals that the highest average volume is for “Swap from OP” action.
• The most popular destination tokens for swapping from OP are USDC and WETH and the highest volume of swaps for these paths occurred on November 8 and 9.
• There is a positive correlation between OP price and net swap volume of OP (Swap to OP-Swap from OP).

Conclusion and ways of recovering OP price:

As mentioned in the methodology section by aggregating the consequences of the previous parts the following statements have been drawn:

• As we mentioned, the main reason for the fall in the price of OP is the trade activity related to OP token on Optimism network. Also, the psychological impact caused by this behavior and the decrease in public trust of the world of digital currency has caused a further drop in the price of OP.

• Cryptocurrencies are also subject to hacks and future regulations, which may affect their overall value. Also, The U.S. is still in the midst of deciding whether cryptocurrencies are securities, commodities or something else entirely.

• Future of OP

  > On 9 December, Optimism announced that it would deploy the AttestationStation, an attestation smart contract that would provide “a permissionless, accessible data source for builders creating reputation-based applications.  > > On 15 December, the platform also added that an Optimism non-fungible token (NFT) would be “coming soon” on the AttestationStation and would be a “customisable profile picture that can represent user identity across the Optimism Ecosystem”. > > By Capital

References:

• Optimism network
• OP on Coinmarketcap
• About OP token

Author:

Credited by MZG

Discord handle: m.zamani#0361

Twitter handle: @GargariZamani