Polygon (MATIC): Could It Win The ETH Scaling Race?

By April 20, 2021DApps
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Every now and somehow managed to spot a cryptocurrency gem long before it really takes off. MATIC is one example of such a gem in less than two months. It's gone up more than 10x. I predicted back in January that MATIC would take center stage as Ethereum layer-2 scaling solutions were explored, and that prediction seems to have come true. What I didn't predict, however, was that the project would rebrand to Polygon to reflect its new direction of development. I also didn't anticipate just how quickly Polygon’s ecosystem would grow in just a few short weeks.

I'll have you know that it's quite rare for me to cover the same old coin twice with him for two months. So, this should give you an idea of just how much potential I think Polygon and the MATIC token still have. Today, I'm going to explain what Polygon is and what it could mean for the MATIC token.

Website: https://matic.network/

MATIC Network Recap

If you missed my previous publishing about MATIC, here is the TLDR. MATIC network was founded in 2017 by Jaynti Kanani, Sandeep Nailwal, and Anurag Arjun.

All three are seasoned software developers, and Jaynti is one of the architects of a more viable Plasma and improved version of the Plasma Scaling Solution for Ethereum originally proposed by Ethereum founder Vitalik Buterin 2017.

Without getting into the weeds more viable Plasma works by creating copies of the Ethereum blockchain called child chains, which periodically submit snapshots of their states to the parent chain.

This parent chain is of course Ethereum, but the MATIC network was designed to be blockchain agnostic, meaning any other blockchain can serve as the parent chain. In addition, MATIC Network incorporates the second blockchain in its architecture which submits snapshots of the MATIC’s plasma chain to the Ethereum blockchain.

This second blockchain is called Heimdall and it uses a delegated Proof of Stake consensus mechanism. Naturally staking is done using the MATIC token and staking the rewards range between 4% to 420% percent per year depending on how much of MATIC's total supply is being staked.

The MATIC token is also used to pay for transaction fees on the plasma chain, which is called Bor. I'll get back to the MATIC Token in a bit. It is worth pointing out that the Bor Layer only has a maximum of 10 validators compared to the 120 validate a limit of the Heimdall and all the validators on the Bor Layer seem to be run by the MATIC team. Methinks that this centralization is why the MATIC network can handle between 7,000 to 10,000 transactions per second.

The MATIC network mainnet launched in May last year, not long after India lifted its first cryptocurrency ban. On that note, you should know that MATIC co-founder Sandeep Nailwal thinks that all this fud around a second cryptocurrency banned in India is straight-up BS.

This is because India has a constitution that is not all that different from the US constitution, and passing such a law would be deemed unconstitutional. Moreover, Indian officials see Bitcoin in a different light now that companies like Tesla have begun holding BTC as a hedge against the relentless money printing by governments around the world.

Matic Polygon Rebrand

Just two weeks after I covered MATIC. They rebranded to Polygon this rebranding signaled MATIC shift in focus from providing a single scaling solution to becoming quote Ethereum 's Internet of Blockchains.

In other words, Polygon wants to become the one-stop-shop for everything Ethereum. In addition to their existing Plasma chain, Polygon is developing another layer -2 blockchains for Ethereum, which leverage zk Roll-Ups and Optimistic Roll-Ups.

The Polygon SDK will make it possible to deploy these blockchains with a single click. You'll also be able to create standalone blockchains using the Polygon SDK and all these blockchains will be interoperable. I'll explain how that works in a moment.

Now if this project sounds awfully similar to what projects like Cosmos and Polkadot are trying to do, well you'd be correct. The difference is the Polygon chains will be able to leverage the security robustness and network effects of the Ethereum blockchain, in the same way, the original MATIC network has. This also means that Polygon is not a competitor Ethereum like those other smart contract cryptos.

To clarify, the MATIC network is still alive well, it's just become the first of many blockchain networks that will make up the Polygon ecosystem. More importantly, the MATIC token will continue to be the token which powers not just the MATIC network, but the entire Polygon ecosystem.

Polygon Explained

Polygon actually has an architecture of its own that's divided into four layers.

The first is the Ethereum Layer, which all Polygons layer to blockchains will rely on for security and consensus.

The second layer is the Security Layer, which will handle Polygons security as a service product. This service that any Polygon blockchain tap Polygon’s core validators for security and consensus for a fee if they don't want to leverage the Ethereum blockchain. Security as a service is also optional meaning Polygons first two layers are not mandatory per se.

The third layer is the Polygon Networks Layer, which handles interoperability between all blockchains created using the Polygon SDK.

The fourth layer is the Execution Layer, which hosts on-chain and cross-chain smart contracts.

Now, if this sounds complex, it's because it is the Polygon white paper that is 70 pages long, and I promise you that there is no beating around the bush going on there. Thankfully, there is an image from that white paper that explains how Polygon works much better than their website.

As you can see Polygons architecture is quite similar to Polkadot. Again, the difference is the Polygon chains have the option of leaning on the Ethereum blockchain for security and consensus. This is important because layer to blockchains, which use Plasma and roll-ups make it possible to reclaim user funds if anything goes wrong on these chains.

This can be done by referencing the last snapshot or rolled up transaction left on Ethereum by that layer to the blockchain. If something goes wrong on a parachain and Polkadot, something tells me you're going to be out of luck, if anything happens to your tokens. That said Polygon is still very much in its infancy and they don't seem to be any other solutions available besides the MATIC network at the time of the shooting.

This is probably why Polygon has been enlisting heavy-hitting Ethereum developers as advisers since it revealed its master plan.

Given all the developments and partnerships that have taken place since the rebrand Polygon seems to be right on track to be Ethereum’s swiss army knife.

Polygon Updates

In mid-February, The Graph (GRT) added support for Polygon making it possible for developers to index data from the DAaps built on Polygon's various blockchains.

One week later Polygon partnered with Chainlink (LINK) to introduce verifiable randomness to the Polygon ecosystem. This is significant because it will introduce new use cases related to gaming and gambling which rely on random number generation.

I suspect the Chainlink vrf will come in handy for Polygons' subsequent partnership with Atari.

This is because Atari also partnered with Decentraland (MANA) to build a virtual cryptocurrency casino, that will be powered by yeah, you guessed it Polygon.

Polygon will also be supporting Atari’s ATRI token and we'll be hosting Atari’s upcoming NFT platform.

Speaking of NFTs some of you might remember that Aavegotchi had announced in January that it was going to launch on MATIC Network because of Ethereum’s insane gasps fees.

Aavegotchi finally launched on March the 2nd, and all 10,000 of its pre-minted NFTs sold out within 60 seconds.

In contrast to regular NFT, Aavegotchi NFTs are actually made using interest-bearing A tokens that lenders get for locking their crypto on AAVE.

This means you can get a more realistic valuation of how much each Aavegotchi is worth. It's also nice that Aavegotchi seemed to be destroyed to redeem this interest-bearing A tokens at least their holders will have something left if the NFT bubble does indeed burst.

The last big announcement about Polygon is one you might have heard about and that's Coinbase's listing of the MATIC token in early March. This had a predictable effect on MATIC price action.

Polygon Adoption

As I mentioned in the introduction MATIC has seen a 10x increase since the start of the year. The timeline of the various announcements I just detailed seems to coincide quite nicely with MATIC price action. It's not just hype that's had the MATIC token on the move though.

The dApps built on Polygon use some serious adoption.

In February Polygon logged over 200,000 unique users on the MATIC Network. There are around 100 DApp built on the MATIC network, though most of these don't seem to have very much engagement. The largest DApp on Polygon by TVL is currently QuickSwap a Unisswap clone that currently holds over 100 million dollars in crypto.

Now that doesn't sound like much but it's the highest TVL of any layer-2 DEX by a wide margin.

The fastest-growing Dapp on Polygon seems to be decentral games which host gambling games in Decentraland.

The pride and joy of Polygons, however, is Polymarket which I'm quite certain is the current leader in the decentralized predictions market.

On Poly Market you're able to bet on the outcomes of certain events such as elections and can actually take profits at any time. This is convenient because you don't have to wait for the actual outcome that you're betting on to make a quick buck.

If you're wondering why this DApps matter for MATIC, it's because the MATIC token is used to pay for all the transaction fees on these DApps Given the surge in demand for NFT's and virtual worlds. It's only logical to assume that the demand for MATIC will continue to grow. So, this begs the question of how high could MATIC go.

Matic Price Potential

The interesting thing about the MATIC token is that even though it's used for staking it has a fixed supply of 10 billion.

If you read my previous publishing about MATIC, you will recall that 22% of the supply was sold between the private sale and IEO, 12% of the supply was reserved forsaking rewards, and the rest was allocated to the MATIC network team advisors and foundation.

These tokens are subject to a three-year vesting schedule with six months unlock periods. Almost half of these tokens have been set aside for staking rewards, and Polygons hopes that the network will be busy be enough to reward validators and delegate is using fees alone.

In the meantime though, there are a lot of tokens coming on the market every six months. We seem to be right at the start of one of these six-month cliffs and this flood of supply could seriously suppress the impressive price action we've recently seen in the short term. In the long term, I think it's pretty clear where MATIC is headed.

Given that MATIC has a fixed supply a low market cap and underpins a network that is increasing by the day, I think a 10x moved from its current price point is a realistic expectation. However, this all depends on what happens to the demand for Polygon, when Ethereum implements its own native scaling solution later this month.

Could Ethereum Scaling Kill Matic?

In case you didn't hear the news, Ethereum is scheduled to release an update to its network by the end of March that could solve many of its scaling issues overnight.

Optimism has been in the works for well over a year and unlike another layer -2 scaling solutions. It does not have a token and was conceived essentially with the express purpose of scaling Ethereum.

Leading Ethereum DApps, like Uniswap (UNI)and Synthetix (SNX) are already preparing to launch on Optimism, and exchanges like Coinbase are ready to support deposits and withdrawals directly from the Optimism Layer.

Once Optimism goes live, I think this is going to put a dent in Polygon and other layer-2s. This is because the main selling point for these crypto projects is that they alleviate issues related to slow speeds and high gas fees on the Ethereum blockchain. Optimism does that too and seems to have the edge when it comes to network effects and adoption, even though it hasn't technically launched yet.

To make matters worse for Polygons, co-founder Sandeep Maliwal noted in a recent interview that they're having a really hard time finding developers to build out their new ecosystem. In his words quote there are 2000 blockchains and 50 developers in the cryptocurrency space.

There's one thing I think could protect Polygon, however, and it's something I mentioned in my previous publishing about MATIC. As you might have guessed the Avagotchi NFT game was funded by AAVE.

One of the largest borrowing and lending protocols on Ethereum. Given the incredible success Avagotchi had so far, this might just entice are them to launch a version of its protocol on Polygon. This wouldn't be very hard to do since a special bridge for interest-bearing tokens already exists between Ethereum and the MATIC network.

Although I've yet to see any evidence of AAVE’s intentions to launch on Polygon, I think that it's very much within the realms of possibility. Not only that but if anything goes wrong with optimism you can bet that Polygon is going to be the first layer to which Ethereum DApps will go.

If India somehow does ban cryptocurrencies Sandeep Nailwal says it will have zero effect on Polygon since the nodes, the team is running are geographically decentralized. Something tells me the MATIC token wouldn't do too well though if that would happen good thing.

Final Thoughts

Believe it or not, Polygon might just be one of the most promising projects in the cryptocurrency space. Besides the incredible technology its team has developed Polygon also has deep roots in Ethereum’s history.

I've lost count of the number of projects Polygon has partnered with since it rebranded much less all of the partnerships it had announced before it rebranded. The thing is I haven't really heard about these partnerships in the crypto media, nor have I even seen them disclosed on Polygons or MATIC blog posts on Medium. Almost all these updates are coming from Twitter, which is probably why they have a lot of followers.

The bigger problem though is that I haven't really seen any progress for many of these partnerships. I suspect this has something to do with the dev shortage the cryptocurrency space is experiencing. As someone who's analyzed the cryptocurrency job market in the past, I can sympathize with sympathizing when he says they're facing a labor shortage.

When I put on my thinking cap it makes me wonder why MATIC would Rebrand two Polygons if they knew they would have a hard time getting enough hands on deck for such a massive project.

Now, I might be wrong, but I think the rebrand might just have been a marketing tactic to give the project enough momentum to spar with Ethereum’s incoming in-house scaling solutions. I remember that many cryptocurrency projects rebranded during the last bull market just so they could stay in the spotlight. If this is the case with Polygons, it wouldn't surprise me and I wouldn't blame them either.

There are over 8,000 cryptocurrency projects competing for attention and investment. For context, there were just over a thousand cryptocurrency projects during the last bull market. Luckily for Polygons, they are an objectively valuable project with a lot of potentials. I think that this will reflect in the price of the MATIC token no matter what happens with Optimism or other competing layer-2 projects.

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