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Governance and revenue are deeply integrated, making Base and Optimism "one family".

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Base will pay 2.5% of the revenue or 15% of the profits generated by the sequencer to Optimism, whichever is higher. In return, Base will receive up to 118 million OP tokens over the next six years.

Original Title: "Binding Optimism with 'Shared Income' in Base, Opening up a New Industry Paradigm"

Source: Odaily Planet Daily

On August 25th, Optimism and Base jointly announced a governance and revenue sharing agreement. The agreement stipulates different governance cooperation modes between Optimism and Base in the short-term and long-term states, as well as the economic interaction between the two parties.

If before this, the relationship between Optimism and Base was limited to the latter using the former's technology stack (OP Stack), which was a kind of soft cooperation, then from today onwards, the two will be deeply bound in terms of governance and revenue, and can even be regarded as "one family" under the same ecological system.

治理层面

translates to

Governance Level

First of all, let's talk about governance. Due to the fact that Optimism designed a relatively complete governance system when issuing OP, this part of the content mainly concerns the Base without governance tokens (it was previously mentioned that there will be no issuance of tokens).

From the perspective of specific governance forms, there will be different modes of collaboration between the two parties in the short and long term.

First of all, in the short term, the upgrade of the current Base network depends on a 2/2 multi-signature contract, with the two signature permissions controlled by Optimism and Base respectively. Both parties will take control in case of emergency situations, or Optimism will execute the upgrade after completing governance decisions.

In simple terms, although this form of consensus appears to be a joint decision by both parties in terms of results, it will rely more softly on the willingness of cooperation between the two parties. Assuming that the two parties are at odds (although the possibility is very low), the 2/2 multisig cannot be unified, and the upgrade of Base will also be stalled.

In the long term, Base, as one of the "super chains" that adopts the OP Stack, will be more tightly 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 unify the management of all "super chains" (including OP Mainnet, Base, and other OP Stack blockchains). This framework is planned to be implemented in early 2024.

According to the agreements of Optimism and Base, after the "Law of Chains" is implemented, both parties will transfer the multi-signature governance authority to a Security Council composed of independent community members distributed around the world. At that time, the Security Council will not only be responsible for the upgrade of Base, but also for the upgrade of the OP Mainnet and other OP Stack blockchains.

In reverse, because the governance of Base will depend entirely on Optimism in the future, it will also have a part of the authority in the governance of the entire council. In response, Optimism will give Base a certain amount of OP shares (details on income will be discussed below), allowing Base to participate in the governance of the council. However, due to restrictions, it is also stipulated that this voting right cannot exceed 9% of the total voting right.

Income Level

Compared to the relatively abstract governance aspect, the collaboration between the two parties on the income level appears to be more straightforward.

According to the agreement, Base will pay 2.5% of the revenue from the sequencer (total revenue on Layer 2) or 15% of the profit (total revenue minus the cost of submitting data to Layer 1) to Optimism, whichever is higher. In return, Base can receive "up to 118 million OP tokens" (about 2.75% of the total supply) in the next six years, allowing it to exercise some of the permissions mentioned earlier in the governance aspect.

In short, there will be a direct economic exchange between the two parties. Optimism will need to pay Base up to 118 million OP over six years, while Base will need to provide permanent revenue sharing to Optimism.

Regarding which of the two expenses is greater or lesser, a simple calculation can be made here. 118 million OP tokens are currently worth approximately 183 million US dollars. According to Dune's data, the sorter revenue since Base's launch one month ago (including the rush period) is about 2.6 million US dollars. Due to the lack of profit data, the revenue is estimated to be 2.5% and Base needs to pay Optimism approximately 780,000 US dollars per year (260 * 12 * 2.5%).

However, it should be noted that due to the nascent stage of the Base ecosystem and the fact that the network currently only has a sorter operated by the team, both of these factors will have a certain impact on the future revenue situation of Base.

From the perspective of Optimism, although the absolute number of OP chips it pays is much higher than the revenue sharing feedback of Base, based on the positive expectation that Base will continue to expand in the future, in the long run, this "transaction" can still bring considerable room for growth.

I personally tend to acknowledge the forward-looking nature of this "transaction". To give an inappropriate example, before the income sharing agreement is confirmed, the relationship between Optimism and Base is similar to that between Cosmos and Terra. Terra adopted Cosmos SDK issuance (here is OP Stack), and relied on UST "magic" to earn a lot of money before 2022, but these value captures cannot be fed back to Cosmos and ATOM at all.

After receiving income from Base, Optimism will have a sustainable revenue stream, which is obviously beneficial for the project's fundamentals.

Some OP holders may have concerns about the potential selling pressure of 118 million OP, but this does not seem to be a major worry.

Firstly, Base has mentioned that this part of OP will mainly be used for governance purposes (but has not mentioned any hard constraints).

The second point is that this portion of OP will be paid over six years, not given all at once;

The third part will be funded by the Optimism Foundation to incentivize the development of the Optimism ecosystem. In other words, these coins are meant to be spent, and OP holders should not worry about whether the money will be spent, but rather whether the spending is worth it. I tend to believe that exchanging up to 2.75% of the OP supply for a permanent boost is a worthwhile "transaction".

As for Base, this OP income also helps to solve the financial problems of Base's operation (including developer rewards, ecological incentives, business development, etc.). Previously, the operation of Base relied largely on Coinbase's implicit support, but due to compliance considerations (there have been voices claiming that Coinbase's relationship with Base may involve violations), Coinbase will probably make clear cuts with Base in terms of operation in the future, and Base will also need to have its own financial resources.

From this perspective, this "transaction" may be a win-win choice that meets the needs of both parties.

"Super Chain" Blueprint, Unveiling the Mystery

Overall, the cooperation agreement announced today by Optimism and Base signifies a new level of collaboration between the two. The closeness of this partnership is difficult to find a similar case in the industry's history.

Looking to the longer term future, Optimism's blueprint for the "super chain" has finally been unveiled through deep integration with one of the most important "super chains", Base: the Law of Chains collaborative governance. Optimism expands its ecosystem and promotes decentralization by distributing OP, while ecosystem entities will continue to use income to sustainably feedback to the parent body, benefiting the parent body's fundamentals and attracting more entities... This positive cycle may become a flywheel to accelerate the expansion of Optimism's ecosystem.

Today's Base is just the beginning. Zora, Celo, PGN, Debank... we may see more projects join this process in the future.