Polygon (Matic Network) Explained: Why Did Billionaire Mark Cuban Invest in This Blockchain Platform?
Although Ethereum is currently the blockchain development platform of choice, it is not without its flaws.
Users of the blockchain network have to contend with scalability issues like low transactions per second (TPS), high energy consumption, and expensive transaction (gas) fees.
Gas refers to the fee charged for processing a transaction or smart contract on the Ethereum blockchain network and is denominated in Ether (ETH), the native cryptocurrency token of the Etherereum blockchain. This fee is paid to Etherereum miners who determine its price by evaluating the demand and supply for the computational power required to process the smart contract or transactions.
Speaking of high gas fees, the increasing use of the Ethereum blockchain has resulted in network congestion that has raised the costs of using the network.
In fact, the average gas fee soared to an all-time high of ~US$70 (S$92.80) per transaction last month.
These high fees are started are starting to price out the average user of the Ethereum blockchain platform who are turning to alternatives or solutions to this problem.
This is where Polygon comes in.
Here is all you need to know about this blockchain platform!
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any investment product.
TL;DR: Ultimate Guide to Polygon (Formerly Matic Network)
- Polygon is looking to solve Ethereum’s scaling problems with Layer 2 solutions.
- It aims to accelerate the transformation of Ethereum into a multi-chain ecosystem powered by Polygon.
- The Blockchain platform is also quite well funded and counts billionaire investor Mark Cuban as one of its investors.
What is Polygon?
The blockchain world is eagerly awaiting the roll-out of ETH2.0: an upgrade that is expected to resolve most of Ethereum’s scalability issues if it goes through.
But, the complete upgrade of the Ethereum network has been delayed yet again to sometime in 2022 due to disagreements and issues within the Ethereum team according to founder Vitalik Buterin.
However, people are not sitting still and working on Ethereum’s scalability issues right now.
Back in 2017, three Indian technologists Jaynti Kanani, Sandeep Nailwal and Anurag Arjun came together to create the Matic network: an Ethereum Layer-2 sidechain blockchain platform that was built to primarily address Ethereum’s scalability issues.
According to Ethereum.org (emphasis are mine):
Layer 2 is a collective term for solutions designed to help scale your application by handling transactions off the Ethereum mainnet (layer 1), while taking advantage of the robust decentralized security model of mainnet.
Also, Layer 2 sidechains are semi-independent blockchain networks that operate in a parallel capacity to the Ethereum ‘main chain’ in a bid to upgrade its speed or capabilities.
Nodes within a sidechain network are responsible for confirming and processing transactions, writing transactions to blocks, and maintaining consensus across the network.
Security is the responsibility of each sidechain; it is not directly inherited from Ethereum.
For example, the Matic network uses a technology it calls ‘Plasma’ that enables users to process blockchain transactions off-chain before they are finalised on the Ethereum main chain.
Subsequently, the Matic Network was rebranded as Polygon when the vision and scope of its platform grew.
And grow it did.
Polygon is a blockchain platform and framework that has the lofty vision and goal of accelerating the transformation of Ethereum into a multi-chain ecosystem powered by Polygon.
In other words, it plans to create an interconnected ecosystem of interoperable (i.e. being able to communicate with each other and share information) Ethereum compatible blockchain networks that can interact effectively with Ethereum’s main chain.
The platform aims to get there by creating a protocol and easy to use framework that enables developers to launch their own customised Ethereum-compatible blockchain networks that enjoy Ethereum’s support.
Thus, their main product is its software development kit (SDK) which has a wide range of modules that allow developers to create blockchain networks with different sidechains that suit their specific needs.
Think of it like Shopify Inc (NYSE: SHOP) for the blockchain.
How Polygon Works
At the time of writing, the Polygon network’s main ‘product’ is still its Layer 2 Polygon Plasma sidechain and its Proof of Stake (PoS) Matic network.
But it plans to expand its repertoire to create other Layer 2 solutions like:
- Optimistic Rollups
- Enterprise chains
- Standalone sidechains
- Shared security chains
- Interchain communication protocols.
Thus, Polygon plans to become something of a one-stop-shop for Layer 2 solutions.
More importantly, Polygon has stated that its existing and proven Plasma sidechains and PoS chain infrastructure will be retained.
Also, future products and scaling solutions will be built on this legacy infrastructure.
In addition, the platform’s scaling solutions has seen promising adoption with 400+ Decentralised apps (Dapps), 76 million total transactions and nearly 790,000 unique users according to a 8 Jun 2021 Economic Times report.
Real-World Applications of Polygon And Partnerships
- EasyFi Network – Decentralised Cryptocurrency lending platform that undercollateralized loans.
- Aavegotchi – a DeFi game where you can trade non-fungible tokens ( ) staked with interest generating aTokens from Aave.
- GraphLinq Protocol: Blockchain automatisation platform GraphLinq announced ‘it will be utilising Polygon for Layer 2 solutions to save on huge gas fees.’
- Umbria Network: DeFi platform that enables the creation of tokenised money markets announced that it will be ‘deploying its suite of applications on Polygon.’
- Aave: DeFi lending platform Avve announced that it will launch a Layer 2 solution on Polygon which brought in US$1 billion (S$1.33 billion) worth of liquidity and more than 7,200 users just 10 days after launch.
- Lazy.com: Mark Cuban plans to use Polygon for his NFT gallery, Lazy.com.
The token was also listed on major cryptocurrency exchanges like Binance.com, Coinbase Pro, Huobi Global, UniSwap and more.
Background of Core Polygon Team
Polygon is currently being run by its Indian technologists and co-founders:
Chief Executive Officer (CEO) Jaynti Kanani, a full-stack developer and blockchain engineer who worked on prominent blockchain projects like Web3, Plasma and WalletConnect.
Chief Operating Officer (COO) Sandeep Nailwal, a blockchain programmer and entrepreneur who also founded ScopeWeaver a blockchain consulting company.
Chief Product Officer (CPO) Anurag Arjun, who previously worked at SNL Financial, Dexter Consultancy, and Cognizant Technologies in a product management role.
The three of them were joined by Mihailo Bjelic a Serbian with an Information Systems engineering background.
Polygon is also advised by this group of experts in the Crypto space.
But more recently, American billionaire (net worth of about US$4.4 billion (S$5.83 billion) entrepreneur, television personality (Shark Tank), and investor Mark Cuban invested an undisclosed amount into Polygon.
For context, Mark Cuban became a billionaire when he sold Broadcast.com, a video portal company he started with Todd Wagner to Yahoo for US$5.7 billion (S$7.56 billion) in 1999.
In an email to CoinDesk, Cuban was quoted as saying that he was an ‘a Polygon user and find myself using it more and more.’
Finances And Polygon Tokenomics (Token Economics)
Although the platform was renamed Polygon, Polygon retained the name MATIC for its native utility cryptocurrency token as a unit of payment and settlement for Polygon’s growing Decentralised Finance (DeFi) ecosystem.
As such, you can use MATIC to pay for gas fees, participate in governance, staking and more.
Speaking of staking, you can earn MATIC tokens by staking your tokens on the Polygon network as it employs a Proof-of-Stake (PoS) consensus mechanism.
FYI: PoS requires that participants ‘stake’ their cryptocurrency by risking or locking it in to guarantee the integrity/security of the blockchain and perform functions like validating blocks and publishing proofs.
Even though the MATIC token can be used for staking, the token has a fixed supply of 10 billion MATIC. Not to mention that a significant portion of this supply is being allocated to staking.
Here are some details about the MATIC token at the time of writing (according to CoinMarketCap):
- Price: US$1.37 (S$1.82)
- Circulating Supply:
- Max Supply: 10 billion MATIC (#16 largest cryptocurrency by market cap)
- Total Current Circulating Supply: 6.29 billion MATIC (62.9%)
- Market Capitalisation: ~US$8.6 billion (S$11.40 billion)
MATIC Token Allocation
Also, an interesting thing about MATIC tokens is that many have not been issued and are gradually unlocked every six months. This could decrease price volatility in the short term.
According to Polygon, MATIC tokens will be released by Dec 2022.
The company is also quite well funded having collected about US$5.6 million (S$7.42 million) in token sales over the years.
Risk of Investing in Polygon
When it comes to investing in Polygon, the elephant in the room is the upcoming Ethereum’s ETH 2.0 upgrade. If the upgrade goes through, the implementation of sharding and other upgrades will make the Ethereum blockchain network become super fast and cheap.
This may reduce the need for the Layer 2 solutions that Polygon is building and facilitating.
But on balance, this may not be the case as these Layer 2 solutions still have an important role to play in the whole Ethereum ecosystem.
In the scenario that Ethereum achieves widespread adoption, you will potentially see millions of transactions taking place daily.
As such, there is still room for Layer 2 solutions to co-exist, especially in the area of online games and NFTs that use micropayments and do not need the maximum security of the mainchain.
This is where Polygon’s solutions come in handy.
Also, Matic one of Polygon’s Network solutions still offers dirt cheap transactions fees.
While gas fees on the Ethereum network can go up to ~US$70 (S$92.80) per transaction, the Matic PoS blockchain network charge fees as low as US$0.0002 per transaction.
But on balance, you should know that Polygon is not the only Blockchain platform that’s developing Layer 2 solutions. This means you cannot rule out the possibility that someone else will develop a better product.
If you buy MATIC tokens, I would think that you are investing in a high growth startup with promising technology and a good team.
And like investing in these types of companies, you are bearing quite a bit of risk and could lose most of your capital.
But on balance, investing in Polygon could be potentially rewarding as well.
Although, MATIC’s price has gone up 7509.3% year to date which means that you won’t be seeing growth of this magnitude.
Not to mention that this coin is still highly volatile, with its price dropping ~64% in a week in May.
Please your own due diligence on this cryptocurrency and invest only money you can afford to lose.