Insights

• The comparison between the OP price and the swaps of all tokens, as well as OP token and top 3 stablecoins of USDT, USDC, and DAI has demonstrated that the swaps activity has had an almost identical pattern for all of the tokens;
• Correlation-wise, the price of OP and the overall swaps activity have both had a similar movement to some degree;
• The initial period after the launch of the OP token is not reliable due to the fact that the market just started to evaluate both the price and value of the token.
• After that period, the price movements and the swaps activity, except the number of swappers, had an almost perfect positive correlation until the end of July;
• The number of swappers has had an upward trend since the launch of the OP token and although it has plateaued in recent weeks, it kept increasing steadily;
• While the price of OP and the changes in swaps activity has had a similar pattern since August, the changes in swaps volume have been more drastic compared to the number of swaps;
• The average swap amount has almost had no correlation with the price of OP since the start of August.

Introduction

Optimism is a layer-two blockchain built on top of Ethereum that benefits from the security of the Ethereum mainnet and help scale the Ethereum ecosystem by using optimistic rollups. On May 31, 2022, Optimism launched its highly anticipated OP token. The Velodrome is an automated market maker solely on Optimism that allow users to trade digital assets securely, with very low fees and low slippage.

In this analysis, the correlation between the price of OP and the swaps activity on Velodrome has been evaluated since June.

Methodology

The required data for this analysis were selected from the fact_hourly_token_prices and ez_swaps of the core and velodrome schema of the Optimism database, respectively. the values for the number of swaps, number of swappers, swaps volume, and the average amount of each swap were averaged between both the swaps from and swaps to values. The price of the OP token has been compared with the total swaps and the swaps of the OP token itself. In addition to those two, the price of OP was also compared with the swaps of USDT, USDC, and DAI as the dominant stablecoins on the network. This decision was made to see if the swaps of different tokens have a different impact on the price, or if they were all just resembling the overall swaps behavior. To evaluate the correlation between the price and swap metrics, The Pearson correlation coefficient and Snowflake’s CORR function were used. The values for this coefficient range between -1 and 1, indicating a perfect negative and perfect positive correlation, respectively. A correlation of 0.0 shows no linear relationship between the movement of the two variables. As a general rule of thumb, correlation coefficient values less than +0.8 or greater than -0.8 are not considered significant. Ultimately, the min-max normalization method was used to be able to compare the price of OP with swaps activity from another point of view, filtered based on the values of the correlation coefficient.

Conclusion

In conclusion, the analysis of the price of the OP token and the swaps activity on Velodrome has demonstrated a relative but not a significant correlation between the price and the number and volume of swaps since the airdrop of the token. The swaps activity of the OP token, as well as USDT, USDC, and DAI as top stablecoins on the network has shown no difference with the overall swaps activity and they moved in accordance with other tokens on the DEX. The changes in swaps volume have been more drastic compared to the number of swaps since the start of August, however, based on the Pearson correlation coefficient it has been more synced with the price compared to other metrics. Besides that, the number of swappers has kept increasing since the airdrop of the OP token, hence has little to no correlation with the price.

Total Swaps

OP Swaps

Stablecoins Swaps

Correlation Coefficient

• The values of correlation coefficients between the price of OP and different swap metrics have indicated that the volume and the number of swaps have relatively correlated with the price, although it is not significant (being less than 0.8);
• While the value for the number of swappers is around 0.5, the daily chart demonstrated that there is no correlation between the price and the number of swappers. The average swap amount has also had no correlation with the price

Comparison of Normalized Values

• The normalized values show the rate of changes in regard to the minimum and maximum value for each metric;
• The following charts for the price of OP and swap metrics have demonstrated the same outcome as the above metrics;
• It can be seen that the price movements had a slight delay compared to the number and volume of the swaps, especially when it was near its all-time high.