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Issue #10: The leading Ethereum L2 goes green as it creates new scaling solutions

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Summary

SymbolMATICCirculating Supply (estimated)8,868,740,690
Rank (MCAP)#10Total Supply10,000,000,000
Price (2022-11-19)US$0.860154Market CapitalizationUS$7,624,422,773

Complete historical Polygon price chart. Source: CoinGecko

In this report, we’ll answer:

What is Polygon?

Polygon is a proof-of-stake (PoS) layer-2 (L2) platform for Ethereum (ETH). It launched in October 2017. 

L2s help blockchains like ETH scale to a higher amount of users. In the past, high usage caused ETH to have slow speeds and high gas fees. In contrast, L2s are fast and cheaper due to their scaling technologies.

Imagine that ETH is an airplane flight from New York to Sydney. On the way, it lands every few hours in different cities.

In this analogy, Polygon is a flight that makes fewer stops. It lands at only a few of the same airports, so it reaches Sydney faster.

Polygon also aims to create an “Internet of Blockchains” for ETH. This multi-chain ecosystem lets users of different ETH-compatible blockchains communicate. 

Summary of Polygon’s value propositions. Source: Polygon

What’s unique about Polygon vs. other L2s??

There are many L2 solutions available for ETH, but Polygon has some unique advantages.

Significant backers

Coinbase and Binance back Polygon. These two exchanges are juggernauts in the crypto industry. 

Their support boosts Polygon beyond many of its competitors.

Environmentally conscious

Polygon became carbon-neutral in June 2022. It’s also pledged $20 million to fight climate change. 

This status helps it catch the eye of environmentally-conscious investors. It also eliminates risks and criticism targeted at other energy-hungry crypto projects.

Significant partnerships

Polygon’s top-class business development has secured partnerships with major global firms.

Polygon ID

Polygon launched Polygon ID, a decentralized identity solution for Web3, in March 2022. This service provides user identification online while preserving the user’s privacy.

Its use cases include

Depiction of how Polygon ID proves claims while retaining user anonymity. Source: The Cryptonomist

Scaling solution variety

Different scaling solutions are more appropriate depending on the project’s needs. Projects can use Polygon Edge to choose the best-fitting Polygon scaling solution. This customizability makes Polygon attractive to a broader range of projects.

The wide range of solutions also helps future-proof Polygon. In the future, a single scaling solution could become dominant or fail to deliver. Supporting many solutions increases the odds of Polygon’s long-term survival.

Technology

Over 37,000 decentralized apps (dApps) have used Polygon to scale. Polygon’s technology avoids drawbacks that often plague popular blockchains.

The technology stack uses three layers. This layered approach makes Polygon more secure than many competitors. Meanwhile, it lets the network maintain high speeds and low fees.

High-level illustration of Polygon’s architecture. Source: Binance Research

Polygon’s plasma chains transfer assets between the mainchain and sidechain when needed. This design helps the mainchain perform faster since there is less congestion.

Community development

Polygon has several groups to help grow its platform.

How do you use the MATIC token?

Polygon’s MATIC token is an ERC-20 token that runs on ETH. Its uses include:

Who’s behind Polygon?

Founders

Sandeep Nailwal, Jaynti Kanani and Anurag Arjun co-founded Matic Network in October 2017. 

Matic Network rebranded to Polygon Network in February 2021. This rebrand encompassed MATIC’s new vision to offer many ETH scaling solutions. Co-founder Mihailo Bjelic, who was working on a similar project, joined during the rebrand.

This team of co-founders brought their significant experience and connections to Polygon. Their expertise helped Polygon become an industry leader. It also poses a hurdle for many new, smaller competitors who lack the same experience.

Employees & growth

Polygon has 573 employees on LinkedIn. The company is growing fast, adding 23% of its employees in the last six months. 

LinkedIn Insights for Polygon. Source: LinkedIn

During the bear market, many companies are laying off employees. In contrast, Polygon is growing. 

This expansion bodes well for the project’s future. It also shows its commitment to long-term building.

Investors and advisors

Significant investors back Polygon, including

Alameda Research was also an investor. However, it’s encountering troubles after FTX’s collapse.

Polygon’s advisors include:

These business connections and funding give Polygon a massive boost over competitors. Polygon’s support may help it stay dominant even if a competitor creates better technology.

How are MATIC tokens distributed and released?

Polygon distributed 32.30% of its total supply (3,230,085,551 of 10 billion tokens). It allocated its tokens in the following percentages:

MATIC token distribution. Source: Messari

In April 2019, Polygon offered three funding rounds.

The seed round allocated 209 million MATIC at $0.00079. The early supporters’ round sold 171 million MATIC at US$0.0026. 

Polygon unlocked half of these tokens at the token listing. The other half remained vested for six months.

The initial exchange offering (IEO) allocated 1.9 billion MATIC at US$0.00263. These tokens became unlocked after the sale.

By November 2022, all 10 billion MATIC tokens finished minting. At that time, approximately 8.9 billion tokens were circulating. 

The remaining 11.3% of the total supply enters circulation through staking rewards. This distribution will finish by 2025.

MATIC liquid supply curve token release schedule. Source: Messari

It’s becoming easier for the token’s price to rise. Unlocks have finished. There’s less chance that sales of freshly unlocked tokens push the price downward. 

When tokens enter the market, the market’s supply increases. If demand doesn’t grow, this new supply pressures the price downward.

Almost 88% of the supply is already circulating. This amount is a high percentage of tokens in circulation. 

Relatively little new supply will be entering the market. As a result, the token’s price can climb more easily with less demand.

Why could Polygon be valuable in the future?

Polygon solves a critical problem on ETH

ETH is one of the most prominent blockchains and has massive adoption. Yet, it encounters high fees and scalability issues during congested times. These problems make it impractical for many users.

For example, Yuga Labs launched a gamified metaverse with an NFT mint on April 30th, 2022. The event created significant network congestion.

It crashed Ethereum’s blockchain and led to the loss of US$200 million in failed ETH transactions. Some users paid transaction fees as high as US$14,000.

Reddit user describes extremely high gas transaction fees paid during Yuga Labs Otherside NFT mint. Source: r/Ethereum subreddit

Polygon solves these issues with a variety of scaling technologies. It converts ETH to and from MATIC tokens on Polygon’s sidechains. These sidechains help ETH stay scalable while dApps run efficiently on Polygon.

As Polygon grows, more users will need MATIC tokens to take part in Polygon’s networks. This increased demand helps MATIC’s price climb.

Polygon offers an identity solution for Web3

Trusted identification in an anonymous, decentralized world is necessary – but challenging to achieve. 

Meanwhile, an identity solution is more valuable if widely used. Otherwise, users have to register with many solutions. They’re less likely to register if they don’t trust the provider.

Polygon ID offers an answer to these requirements. Polygon has gained trust inside and outside of the crypto industry. This trust makes its end users and applications more likely to use its ID solution.

Co-founder Mihailo Bjelic also points out that Polygon ID is “private by default, offers on-chain verification and permissionless attestation. There is nothing in the digital identity space now that ticks all these boxes.”

These advantages encourage applications to accept Polygon ID. Users will need to sign up for the ID. This increased number of users encourages even more applications to use the ID. 

More applications and users increase demand for the token. This demand increases the odds that the MATIC token’s price will appreciate.

Polygon has long-term potential from its strong business and marketing

Polygon’s leadership helped catapult it to dominance within several years of rebranding. It hired talent from significant tech companies such as Amazon, Airbnb and YouTube. 

Its connections and business development earned the trust and backing of major companies. This support increases interest and awareness of Polygon. This popularity makes it an obvious choice for businesses entering Web3.

These businesses build new applications on Polygon. Meanwhile, Polygon’s popularity caused prominent DeFi protocols like Aave, Uniswap, and Lido to deploy on its network.

Polygon summarizes its growth in its Q3 2022 report. Source: Polygon | Polygon Ecosystem Update Q3 2022

More applications and users on Polygon increases token demand. This demand helps push MATIC’s price upward.

A strong business also increases the odds of Polygon’s long-term survival. These odds make Polygon more attractive to investors. Meanwhile, many other crypto companies are falling victim to the bear market.

Polygon fits several narratives

Scaling

After 2020’s DeFi boom created congestion on ETH. The ensuing problems made scalability a powerful narrative. 

Polygon’s primary goal is to provide scaling solutions. It’s a dominant player building a strong ecosystem-growing network effect.

The ecosystem relies on MATIC tokens. A growing ecosystem increases demand for the tokens. This demand helps increase the token’s price.

Environmental concerns

The crypto industry has been making headlines as an environmental threat. Energy consumption, especially from proof-of-work networks, harms the environment.

The EU has discussed complete bans on energy-intensive proof-of-work mining. If implemented, these would negatively affect the price of these blockchains’ tokens. Other people support the environment by distancing themselves from proof-of-work currencies.

In contrast, Polygon is carbon-neutral and aims to become carbon-negative. It will buy carbon credits that offset its emissions back to its launch.

Polygon is committed to helping the environment through its “Green Manifesto.” Source: Polygon  

This initiative aligns with the green narrative. By supporting this narrative, Polygon can attract environmentally-conscious investors. They create demand for the token and help increase its price.

It also reduces the chance of a government ban crippling the project. If governments did ban proof-of-work currencies, this could crush their token prices.

ETH 2.0

In September, ETH went through a major update called “The Merge.” This update changed ETH from proof-of-work to proof-of-stake.

This update may help boost ETH’s use and longevity in many ways. Since Polygon brings value to ETH’s ecosystem, ETH’s growth can boost Polygon’s growth.

A larger Polygon ecosystem increases demand for MATIC tokens. This demand helps their price to increase.

Web3, blockchain and NFT growth

Recent years have seen an explosion in the usage of blockchain technology. Estimates show that the NFT market share may increase by US$147.25 billion by 2026.

Web3 is a growing movement using blockchain and NFTs to create a new phase of the Web. Meanwhile, major companies are turning to Polygon for their Web3 needs.

Web3 is in its early stages and growing fast. From 2020 to 2021, active Web3 developers nearly doubled. As this trend continues, these new developers will create more Web3 applications.

Chart depicting active Web3 developer growth over time. Source: Electric Capital Developer Report (2021)

As more companies and developers build Web3 applications, they’ll need scaling technologies. 

Polygon is already trusted and used by major companies. It’s a logical solution for new Web3 developers and companies.

More applications building on Polygon increases demand for the MATIC token. This demand helps create upward price pressure for the MATIC token.

Polygon is still developing new features

Polygon doesn’t publish a roadmap. Yet, announcements show it’s still developing new solutions to grow its ecosystem.

Polygon centers around Ethereum – yet it may expand to other chains. This addition could significantly increase its adoption and token price.

Meanwhile, Polygon’s treasury is investing enormous amounts in ZK-based scaling solutions. Polygon Avail, Polygon Nightfall, Polygon Miden and Polygon Zero are in development.

In July 2022, Polygon announced zkEVM at the EthCC conference in Paris. It’s the first EVM-compatible ZK-rollup version integrating with existing developer tools, wallets, and smart contracts. Developers can adopt zkEVM without modifying or reimplementing code.

The zkEVM testnet went live in October. ZkEVM will release in 2023.

What is the market saying about Polygon?

Polygon total value locked (TVL) ranks high among EVM chains

Polygon’s TVL is dropping during the bear market. 

TVL measures assets in a platform. It offers insights into a platform’s adoption and trust.

The current decline is reasonable to expect. Investors are more risk-averse in the current macroeconomic and industry conditions.

Polygon TVL over time. Source: DefiLllama

Declining investor confidence is dropping most projects’ TVL. Given this paradigm, measuring Polygon’s TVL against competitors may make more sense.

Polygon has the third-highest TVL ranking among EVM chains.

Unsurprisingly, Ethereum has a higher TVL than Polygon since Polygon builds on Ethereum.

BSC is Binance’s chain and operates in a different ecosystem.

Arbitrum is a close fourth and also targets Ethereum. Yet, it only offers one type of scaling technology: optimistic rollups.

This limited offering contrasts with Polygon’s array of scaling solutions. If Arbitrum’s single technology falls out of favor, it’s more vulnerable than Polygon.

Avalanche comes in fifth place. Yet, like BSC, it fills a different niche that doesn’t target Ethereum.

Polygon’s TVL ranking amongst EVM chains. Source: DefiLlama

Polygon’s usage is growing despite waning social volume

Polygon’s social volume has declined since the bull market’s peak in Q4 2021. This decline also happened in many other projects.

In particular, interest in blockchain gaming has declined during the bear market. Blockchain gamers may contribute significantly to Polygon’s social volume scores. They’re a large retail end-user group that may create high social media volume.

Yet, social volume has stayed relatively steady since July, with occasional spikes. This core social volume shows a consistent baseline interest in Polygon. 

MATIC social volume from 2021-11-20 to 2022-11-20. Source: Santiment

Polygon’s success has strong ties to adoption by businesses and developers. Meanwhile, some other projects live or die at the hands of socially active retail end-user communities. 

Given this paradigm, Polygon’s social volumes are a less relevant growth indicator.

Other metrics show that Polygon is growing. It continues to research and build new solutions and gain valuable partnerships. 

Polygon NFT usage spiked to all-time highs in Q3. During the bear market, Polygon found a niche in NFT integrations. It did this with significant companies like Instagram and Reddit.

Polygon Analytics releases weekly reports showing the network’s activity. A recent report shows that network usage is growing despite the bear market.

2022-11-16 weekly update showing network activity metrics and changes. Source: Polygon Analytics

Polygon has a massive social community

Polygon’s social community has a stunning:

They have significant differences, but some consider Arbitrum to be a Polygon competitor. It’s also an L2 targeting Ethereum and has the closest TVL ranking to Polygon in this niche.

Arbitrum’s social community has:

Polygon’s community size significantly eclipses Arbitrum’s. This disparity helps reinforce Polygon’s position as an industry leader. Being the leader suggests that Polygon has higher odds for long-term success.

What are the risks for Polygon?

Every technology has unavoidable risks

Polygon is a battle-tested survivor that’s operated for years. Yet, there are always risks in technology.

An unforeseen hack or exploit could affect Polygon and drop its token price.

Certik, a prominent blockchain technology auditor, rates Polygon 95 out of 100. This rating supports trust in Polygon’s security.

Some criticize Polygon’s multisigs

Another potential cause for concern is Polygon’s multisigs.

Specific trusted individuals or entities can sign a multisig. Significant network actions can trigger if the majority of allowed entities sign.

Multisigs can help reinforce a network’s security. Suppose an issue such as a bug or hack arises. In that case, multisigs let responsible authorities perform emergency actions.

Yet, multisigs can also be a target for hackers. While unlikely, signers could also conspire to perform a malicious action.

Polygon co-founder Mihailo Bjelic discusses the platforms’ multisigs. Source: Twitter

Polygon co-founder Mihailo Bjelic has addressed the multisigs in a Twitter thread. He stated that Polygon is working toward removing them, eliminating this risk.

If ETH fails, it may drag Polygon down with it

Polygon’s developers built it to enhance ETH. It seems unlikely that a problem would crush ETH. Yet, this hypothetical problem could negatively impact Polygon and the MATIC token’s price.

Polygon may expand to more chains in the future. If this occurs, it will help reduce any impact from ETH’s blockchain collapsing.

Polygon’s use case faces many competitors

ETH is one of the most popular blockchains. Many other projects attempt to solve the same problem as Polygon.

A competitor with superior technology could eventually surpass Polygon.

Yet, Polygon has a massive lead over its competitors and leads TVL rankings. Its business team, partnerships, and industry connections are hard to replicate.

Most of all, it earned a position of trust with legacy businesses. This trust and Polygon’s history take significant time to build.

Trust is especially valuable after the recent collapses of trusted, notable crypto companies.

Bottom line

Polygon’s competent team has significant experience. The team grew the company into its position as the competitive ETH L2 niche leader.

Prominent backers and partners increase Polgyon’s odds of surviving the bear market. While other crypto companies collapse, Polygon grows and builds for the next bull run.

It’s built significant trust over the years. This trust earned partnerships with major legacy companies and crypto industry players.

These partnerships and trust are hard to replicate. This difficulty cements Polygon’s position ahead of competitors.

Polygon is likely to benefit from narratives like Web3 growth and environmental friendliness. These narratives could carry the MATIC token’s price to new highs during the next bull cycle.

What can I do from here?

Who should I follow?

Sources

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