💡 What role does MATIC token play ?
Polygon project was earlier known as Matic. It rebranded to Polygon in 2021, however, the token of the project is still known as MATIC. MATIC is the native token for Polygon. It is used for:
- Staking: Polygon runs a parallel proof of stake blockchain to Etherium blockchain. Validators stake MATIC tokens to participate in the process of adding blocks. Validators earn tips and block rewards for adding blocks. However, their stake is slashed as penalty if they are found to be dishonest.
- Block reward: Validators earn MATIC tokens as rewards for adding blocks to blockchain.
- Transaction fee: Similar to Etherium. Users have to pay MATIC tokens to include their transactions on the Polygon blockchain.
📝 Origin of Polygon
- The original idea came from Jaynti Kanani, the now CEO of Polygon. Kanani was working at Housing.com as a data scientist in 2017. when he first noticed scalability issue and congestion on the Ethereum network due to popular NFT projects like Crypto Kitties.
- He along with Sandeep Nailwal, and Anurag Arjun launched Matic in 2017. The project aims to solve the high gas fees, low throughput, and scalability issues of Etherium.
- The Polygon team raised equivalent of $5.6 million in ETH by selling 1.9 billion MATIC tokens on Binance Launchpad in April 2019.
- The project went live in 2020.
- Matic rebranded to Polygon in February 2021 to become a Swiss Army knife for scaling solutions.
👴🏻 Founders
Jaynti Kanani
- Education: He did Bachelor of Engineering in Information Technology from Dharmsinh Desai Institute of Technology in 2007-2011.
- Experience:
- Worked as senior software engineer at Persistent Systems from 2011 to 2014.
- Worked as data scientist at Housing.com from 2014 to 2017.
- Founded Polygon in 2017. He is the current CEO of Polygon.
Sandeep Nailwal
- Education: He did M.B.A in Supply chain management from National Institute of Industrial Engineering in 2014.
- Experience:
- He worked as consultant at Deloitte from 2014 to 2015.
- He was head of technology and supply chain of eCommerce division at Welspun Group from 2015 to 2016.
- He founded ScopeWeaver.com, a marketplace for professional services in 2017.
- He co-founded Polygon and is the current Chief operations officer.
Anurag Arjun
- Education: He completed Bachelors’s in Computer Engineering from Nirmala Institute of Technology in 2006.
- Experience:
- Worked as Programmer Analyst at Cognizant Technology Solutions from 2006 to 2008.
- Worked as product manager at Dexter Consultancy Pvt. Ltd. from 2008 to 2013.
- Worked as product manager at IRIS Business Services Limited from 2014 to 2017.
- He co-founded Polygon and is the current Cheif Product Officer.
😌 What problems does it solve ?
- Scale: Etherium has limited blockspace and throughput. Which results in high gas fees and long wait times. Polygon aims to make Etherium much more scalable.
- Flexibility: Polygon offers various approaches like sidechains and rollups to scale Etherium. Developers are free to choose a custom existing solution or create their own.
- Efficiency gains: Projects building on Polygon do not have to run servers and hire an army of developers.
- No downtime: Thousands of node operators running 24 X 7 ensure there is never a time when the network is down.
- Cheap: Building, deploying and using apps on Polygon is much cheaper as compared to Etherium.
- Etherium ecosystem: It is very easy to migrate apps from Etherium to Polygon. Additionally, Polygon blockchain is compatible with existing Etherium tools like Metamask, Remix, etc.
🤖 How does it work ?
Polygon supports two major types of Ethereum-compatible blockchain networks: stand-alone networks and secured chains networks that leverage “security as a service” model.
Stand alone blockchain
Stand-alone chains rely on their own security, for example, they can have their own consensus models such as Proof-Of-Stake or Delegated-Proof-Of-Stake.
These kinds of networks are fully sovereign which presents them with the highest level of independence and flexibility, but it makes it more difficult for them to establish a reliable security model.
For example, PoS requires a high number of reliable validators. This kind of model is usually suitable for enterprise blockchains and already established projects with strong communities.
Secured blockchain
Secured blockchain architecture consists of four abstract, composable layers:
Ethereum layer
Polygon uses Etheirum to host and execute mission-critical components of their logic. This layer is implemented as set of Etherium smart contracts to perform functions like:
- Finality/ checkpointing
- Staking
- Dispute resolving
- Messaging between Etherium and Polygon chains
This layer is not compulsory.
Security layer
This layer provides “validator as a service” – a set of validators that periodically check validity of any Polygon chain for a fee. This layer is implemented to run in parallel to Etherium to perform functions like:
- Validator management: Registration/deregistration, rewarding etc.
- Polygon chain validation
Security layer can have multiple instances, implemented by different entities with different characteristics shared by multiple projects. It can also be implemented on Etherium, in which case Etherium miners perform validation.
Polygon network layer
It is mandatory layer that consists of blockchain networks each serving their respective community. Polygon network layer performs following functions:
- Transaction collation
- Local consensus
- Block production
Execution layer
Execution layer integrates and executes the transactions to be included in the Polygon network blockchain. It consists of two sublayers:
- Execution environment: Virtual machine implementation.
- Execution logic: State transition function for Polygon network layer.
The main takeaway when it comes to Polygon’s architecture is that it is deliberately made to be generic and abstract. This allows other applications, that are looking to scale, to choose the best scaling solution that perfectly fits their needs like:
- ZK rollups
- Plasma chains
- Optimistic rollups
🏛️ Governance model
Polygon project is maintained and updated by a for-profit company: Polygon technology. There are no plans to decentralize the governance of the protocol.
Polygon Technology can be a single point of failure in terms of government regulation, making changes to protocol like increasing the max token supply, etc.
😨 Competitors
Polygon faces stiff competition from Etherium scaling solutions and other layer 1 blockchains competing with Etherium itself.
- Solana
- Avalanche
- Polkadot
- Tezos
And many more
🤑 How much money does the project have for future development ?
- The team raised $5.61 in three funding rounds in 2019.
- The project holds approx 45% of the total MATIC token supply.
- The project does not have any other ongoing source of revenue.
👍 Tailwinds
- Ecosystem: Many projects have migrated to Polygon.
- Rising demand: More and more decentralized apps are being built. Demand for blockchain that can handle such a role is growing.
- Switching cost: It will be difficult for the projects to migrate to other blockchains with their ecosystem and userbase once they have deployed on Polygon.
- Network effects: More people will use Polygon as more apps are built on Polygon. More apps will be built as more people use Polygon. This positive feedback loop has potential to result in explosive growth in a short period of time.
😨 Risks and challenges
- Polygon is a centralized protocol being maintained by a single private company. There is no guarantee that the company will not face difficulties like government regulations, lawsuits – for selling unregistered securities, internal disputes, etc.
- Polygon is built on Etherium. Their success depends on the success of Etherium. This exposes the project to factors outside its control.
- The project holds a sizable amount of funds. However, they do not have a profit model that generates revenue. Polygon is a long-term project whose growth can be affected by lack of funds.
- Many governments will regulate/ban Polygon as more and more decentralized finance apps are built on Polygon.
- Polygon faces stiff competition from Etherium scaling solutions and other layer 1 blockchains competing with Etherium itself.
💰 Tokenomics
MATIC token has fix max supply of 10,000,000,000 tokens. They have been distributed as follows:
These tokens will be released as follows:
Token inflation will fall down to 0 once the complete fix max supply is in circulation.
Demand pressure
Token’s price increases due to demand pressure.
Demand pressure on MATIC token will come from:
- Staking: Validators will acquire and stake MATIC to participate in block validation.
- Gas fees: Users will acquire MATIC to pay for gas fees – to execute their transactions.
- Speculators: They will buy MATIC for future price appreciation.
Supply pressure
Supply pressure on a token decreases its price.
Supply pressure on MATIC token will come from:
- Block reward: Some validators will sell their block rewards
- Early investors: They have made huge profits on their initial investment. Some of them will sell part of their holdings to realize gains.
🧐 Indicators to watch out for
- YouTube channel is growing:
- Twitter following is growing:
- Users are growing:
👋Final remarks
Etherium is the largest and most used blockchain that supports smart contracts. It is also in need of scaling solutions. However, still, I will not be investing in Polygon because:
- We will have to see how Etherium 2.0 is rolled out, which aims to scale Etherium.
- Polygon’s governance is not decentralized. Handful of founders control the protocol.
- Polygon proof of stake has limited validators – again a point of centralization.
Etherium is a growing project planning to solve scaling issues without compromising on centralization and security. It will be interesting to see how Polygon fits in the overall scheme of things once Etherium 2.0 is in place.
😊 Do further research
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