Decentralized finance and the OP Stack fit together like puzzle pieces. Many things in DeFi are directly or indirectly fueled by the OP Stack. Let’s take a pause to understand the role the OP Stack plays in this decentralized relationship, which ultimately lifts the industry forward with its positive-sum game.
First, some clarity.
OP Stack:
OP Stack is an open-source framework for building optimistic rollups. The framework clearly defines how different things can operate in the rollup built using it. It is highly customizable and modular by design. This means that when implementing it, one can choose to customize the execution layer, data availability layer, fraud-proof system, and more.
Decentralized Finance [DeFi]:
DeFi is a blockchain-based finance system that doesn’t rely on centralized authorities for its functioning. This includes but is not limited to, decentralized exchanges, synthetic assets, lending and borrowing systems, stablecoins, and prediction markets.
By understanding both of these at a deeper level, one may realize that many applications of DeFi can directly take advantage of one or more features of OP Stack. Let’s analyze each of the features and see how it applies to DeFi.
1. Scalability
OP Stack helps build layer-2 solutions, which are characterized by having a very high number of transactions per second compared to the layer-1 blockchains on which these base themselves.
More transactions per second means the DeFi platforms that need high speeds can have a decentralized way of attaining that with the help of a pre-built framework. The positive side effect of this is a dramatic reduction in the cost of transactions.
Because of this, decentralized exchanges, lending platforms, and yield farming protocols are being successfully built with OP Stack.
2. Cross-chain interoperability
The rollups built on the OP Stack have the unique advantage of being able to communicate with each other. The infrastructure provided by the OP Stack sets a standard for how a rollup should be built to communicate with others, creating a network of rollups that can interoperate to form “Superchain.” This activates newer avenues that work in favor of DeFi apps, giving more ways to store and share value in a decentralized manner across chains.
This way, each new chain joining the network adds on top of the other and increases the value proposition of the previous ones, increasing investment opportunities.
3. DeFi governance
The reduction of high throughput costs also benefits another section of DeFi—governance. Lower transaction fees mean that voting can happen more frequently, and even the user holding small amounts of a particular token can participate in the voting process without having to worry about the cost of voting. The increased inclusivity and optimized infrastructure for governance should ideally create better and more informed governance within the decentralized realm. However, it must be noted that there can be a difference in implementation and other factors that may affect variables related to this.
4. Customizability and Modularity
The reason OP Stack exists as a framework is its customizability. Without it, all chains built on it would be just clones of each other. One of the critical ingredients that fuels this customizability is the modular nature of the framework.
As mentioned above, a DeFi protocol can customize one or more modules of OP Stack to optimize their specific use case best. These come in the form of modules that can be improved upon. So, if a protocol wants to focus only on scalability, it can do that; if it wants to make the most secure and decentralized chain, it can choose to do that. The permutations and combinations apply here to a large number of variables. This effectively means that the DeFi project needs to hold back itself because of the lack of availability of a feature. They can create one of their own and start innovating.
In addition to these four, the OP Stack also contributes to security and user experience, provides the infrastructure to create complex DeFi instruments, and helps automate many aspects of decentralized finance.
Conclusion:
Out of the many ways OP Stack empowers decentralized finance, scalability, interoperability, governance, and customizability stand out to us if we take the impact into consideration. The list is obviously incomplete. There are tons of other use cases already live, in development, and yet to be witnessed by the world, all powered by an open-source protocol that keeps improving with each passing day.