What is the mystery of Polygon’s rise?

Polygon’s Token matic reached its highest price of $2.70 on May 18, and it has soared more than 10 times in the past month. Its total market value ranks the highest among the top fifteen, and is far ahead in the nearly 90-day increase. After a week of sharp decline, matic quickly recovered from the lowest point of $0.75 to the highest point of $2.44. Matic’s skyrocketing has attracted the attention of a large number of investors. After all, the price performance of the secondary market also reflects its value to a certain extent, and what is the mystery of it, commonly known as the “horseshoe”? Is it just a flash in the pan?


Ethereum’s dilemma

As we all know, the majestic development of the Ethereum ecosystem, especially the increasing number of users of the Defi project, is facing the problems of congestion and rising gas fees due to the low TPS (processing speed per second). This has also triggered an arms race to seek scalable, decentralized, and secure solutions to reduce user costs. Taking advantage of the delay in the expansion of Ethereum, the more efficient layer1 public chain such as Binance Smart Chain (BSC) has seized the Defi market of Ethereum. It is worth noting that the decentralized exchange PancakeSwap on BSC The amount of locked positions has surpassed Uniswap.

The impossible triangle problem (decentralization, security, performance) of the blockchain has always existed, and it is often possible to sacrifice one of them to realize the other two. Neither Ethereum nor the current BSC can solve it. BSC is only a temporary alternative in terms of speed and transaction costs, and because it has only 21 nodes, it cannot achieve decentralization. The recently popular public chain Solana has achieved the extreme in terms of speed and transaction costs. The number of verifiable nodes (594) is far less than that of Ethereum (11000+), and it has not been completely decentralized.

The arrival of the guardian

Although public chains such as BSC, Solana, and fantom have seized part of the market, Ethereum, an ecologically prosperous smart contract platform, still has a group of devout DeFi users and developers who hope to help it improve cost efficiency.

In 2017, 3 active participants from the Indian crypto community co-founded Matic to solve the expansion problem of Ethereum. On February 10th of this year, the Matic Network team decided to expand the scope of their project and changed its name to Polygon.

The Ethereum expansion plan currently used by Polygon includes two expansion solutions, the Plasma chain and the PoS chain:

The Matic PoS Chain is officially called the “commit chain”. It is different from the side chain. Although Matic PoS Chain has its own consensus mechanism, it also relies on the security of Ethereum in terms of staking and checkpoint verification of nodes. It runs in parallel with the Ethereum chain, and the chain is protected by the proof-of-stake consensus mechanism with its own verification nodes, ensuring its decentralized characteristics. In addition, the Matic PoS Chain is compatible with the Ethereum Virtual Machine (EVM), and those projects based on Ethereum can easily migrate their smart contracts to the Matic PoS Chain.

Matic Plasma Chain is the layer 2 network of Ethereum, which is a Plasma solution based on EVM. Plasma allows users to transfer transactions from the main chain to the sub-chains, thereby realizing fast and cheap transactions. One disadvantage of Plasma is that it takes a long waiting time (7 days) for users to withdraw funds from the layer 2 network, while PoS Chain only requires about 3 hours. In addition, Plasma cannot be used to extend common smart contracts.

On the whole, Polygon uses a combination of Plasma and PoS to share security with Ethereum, and through expansion plans, it hopes to improve efficiency and ensure security. Currently, the Polygon chain can handle 65,000 TPS, far surpassing the 14 TPS Ethereum. In terms of transaction fees, Polygon’s transaction fees are about $0.00004-$0.00012, which is far lower than the prohibitive gas fees currently on Ethereum.

Polygon’s future

In Polygon’s white paper: “Polygon is a protocol and framework used to build and connect a blockchain network compatible with Ethereum; Polygon’s mission is to become a Layer 2 solution aggregator on Ethereum and realize Ethereum The construction performance that the network itself failed to achieve can make up for the missing important links in the current Ethereum ecosystem; Polygon is positioned as a scalable solution that accelerates the adoption of the Ethereum ecosystem…”1623138671841051

At the same time, Sandeep Nailwal, the co-founder of Polygon, also emphasized in an interview with the media that Polygon’s mission is always to expand Ethereum and bring the power of blockchain and Crypto to more users, and expressed his gratitude to the founder of Ethereum. Respect of Vitalik. What can be felt is that both the founder and the entire Polygon team exude loyalty and admiration to the Ethereum community. 

At present, Polygon’s core team has turned to creating all the tools and infrastructure required to create all EVM-compatible second-layer solutions. Their first product SDK (Software Development Kit) was released on May 27, aiming to build an Ethereum multi-chain system for creating new fully interoperable DApps. You can choose the second layer: ZK Rollups , Optimistic Rollups, Polygon PoS, State Channels, or Validium. Operators will be able to choose whether to fully integrate into the Ethereum security layer or run their existing PoS chain solutions. Polygon will save development time and reduce costs in this step, and can use the security provided by Ethereum.

Polygon will effectively transform Ethereum into a mature multi-chain system in the future. Its similar multi-chain systems include Polkadot, Cosmos, Avalanche, etc., but in contrast, the combination of Polygon+Ethereum has many advantages: Strong user base and developer community; low technology development threshold; reliable security, etc.

The expansion of Ethereum is not a winner-takes-all game. In the future, different projects will have different needs. Therefore, various expansion plans will coexist for a long time. Polygon proposes to build a multi-chain system for Ethereum. Reliable guarding solution on the long road to 2.0. In the future, the support and first-mover advantage driven by the Polygon community will be enough to give Ethereum an advantage in front of new entrants.

Challenges Polygon will face

At present, Polygon has formed a strong ecological community through the mature expansion solution of the Matic PoS chain, the incentive of Token and the outstanding performance in the secondary market. Although Polygon has a large number of DeFi and NFT projects, from the perspective of lock-up volume, DeFi lending leader Aave accounts for 62.62%. It can be seen that a leading project supports a huge ecosystem, and the quality of other projects is generally low.

When it comes to the expansion track of Ethereum, we have to mention the popular Optimism and Arbitrum. Like Polygon, Optimism and Arbitrum have also received support from the DeFi head project (UniSwap). Arbitrum, which was launched on the mainnet on May 28, is also supported by infrastructure such as Metamask, Chainlink, and Truffle, and Optimism, which will be launched soon, has also reached an early cooperation with Synthetic, the leading decentralized synthetic asset.

From the perspective of Aave’s influence on the Polygon territory, the ecology supported by the head project will also attract large-scale lock-ups. Compared with Optimism and Arbitrum, in terms of technology implementation, Polygon’s progress does not seem to be optimistic . It claims to build a variety of layer2 expansion solutions. Currently, it only launched SDK (software development kit), and other Layer 2 modules are still available. In development. And its competitors have already geared up, and will start a new round of competition for the ecological territory this summer. By then, Optimism and Arbitrum will inevitably absorb part of the locked position, after all, capital will always flow to profitable places.

In addition, a series of Layer 2 communities such as Optimism and Arbitrum have not yet issued governance tokens. Once the tokens are issued, they will definitely attract the attention of the secondary market and affect the market value of projects that provide relatively outdated expansion plans.

Polygon will respond to competition by accelerating iteration. It is reported that the Polygon SDK will undergo two iterations. The first version allows developers to create independent chains and is fully interoperable with the Ethereum network. In the second Polygon SDK iteration, the development team will be able to create an actual second layer protocol directly connected to the Ethereum mainnet.

Post ETH 2.0 era

Even ETH 2.0 does not provide the infinite scalability required for high-throughput Dapps. The best case is Ethereum’s 64 shards (shard), each shard has 50 TPS, then the maximum that can be provided is 3200 TPS. From the perspective of application adoption rate, it is expected that demand will continue to rise, and congestion problems will still exist.

However, after ETH2.0, Polygon’s solution will be more robust, because the lower the Gas fee, the Polygon chain can submit nodes to Ethereum in a shorter interval. But it is difficult to determine whether the expansion plan for Ethereum will flourish in two or three years, or whether it will be the only one. As the blockchain technology matures, there will be more and more technical teams that can provide mature solutions. Polygon will also face stronger competitors. Whether its ecology is sustainable requires continued observation.

Interest statement: The author and editor of this article do not hold Polygon-related tokens.

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