Polygon (MATIC) Project Review

I had heard of Polygon/Matic previously, but hadn’t used it before I went through the process of creating a NFT on OpenSea. I essentially knew it was a blockchain focused on the scalability of the Ethereum network but never took the time to deep dive the documentation and understand the roadmap.

You know what peaked my interest to do so? When I sent an Ethereum transaction and it costed around $20, while the equivalent transaction amount in USD sent on polygon costed me a couple cents.

That is the moment I said to myself “okay, I have to look more into this project” 🙂

Project Overview

The original project was created in 2017 under the name Matic network (as you can see by the name they rebranded later to Polygon) and the team was based out of India.

The original team was everyone outside of Mihailo who joined later on.

It is also a open source project built by decentralized team of contributors from all over the world.

Purpose

It was born out of the need for scalability. It came down to speed and cost of transactions that seems to be the reason for the launch.

The problem I have always seen with crypto and the idea of it being this global computer or allowing concepts like web 3.0 was the scalability portion. If costs were to high to launch a decentralized application or it costed $30 to send a transaction as a user of one of these applications, then people would rather sacrifice decentralization for speed and lower costs.

When it comes to crypto it always comes back to this triangle.

Polygon is a project that is working to fix that issue of scalability with blockchains like Ethereum. Basically it is trying to make it so crypto can have it’s cake (decentralization) and be able to eat it too (security and scalability)!

Even with scaling solutions that are being worked on by Ethereum will help (ETH 2.0 and proof-of-stake), think about the number of transactions that are happening across the entire digital world of industries like payments, IOT, gaming, supply chain, etc. So even if ETH 2.0 does allow for some relief of transaction congestion and lower fees, layer 2 scalability needs to be implemented as well.

When I say layer 2, I mean that transactions are occurring on the polygon blockchain at a much faster pace and at lower costs and then those are packaged up and recorded on the base layer like Ethereum. I could try to explain all the technical details, but this post is more around use case and high level understanding (plus I’m not sure I could explain all the technicals anyway haha).

The graphic below shows the main pieces to how it works.

You have block producers who are aggregating all the transactions, but the speed of blocks being produced is much faster than legacy proof-of-work blockchains like bitcoin and hold more transactions in each block.

A block is being produced every second at relatively low fees. Polygon can process up to 65,000 transactions per second on a single side chain and has a block confirmation time of fewer than two seconds.

The one thing I noticed though is that there isn’t too many block producers (7 to 10) which means that it is relatively centralized. These block producers have to pass certain criteria like holding a ton of MATIC (to make sure incentives are aligned and they may lose their stake if they act poorly).

Criteria like:

– Uptime history
– Technical specifications
– Dynamic scaling capability
– Location diversity

After the block producers, you have the transactions being aggregated and validated by stakers on the polygon network (since it is a proof of stake protocol). That ends up being attached to the base layer of Ethereum. Again it doesn’t have a massive amount of validators (as of this post it is at 100).

You see that a main focus throughout the documentation is around Ethereum, but the design of the project is to be able to work with any blockchain as a scaling solution as well as a way for blockchains and external systems to talk with one another. This is known as interoperability.

Those are the major architecture pieces of the project and is a good base level to understand its purpose.

Believe me, I want to understand everything on the technical side of all crypto, but then my brain would probably explode. I’m trying to boil down complex topics into more digestible knowledge pieces. If you do want to know it all, check out the Matic whitepaper.

So what are the major highlights to summarize this project?

– It scales blockchains to become more user friendly, developer friendly, cheaper to transact, communicate cross blockchains, and allows faster speeds of transactions.

– It does all of the above with some sacrifice to decentralization around block producers and stakers.

Competition

Now, are they the only ones working on this type of scaling solution? No. There are other projects out there such as Polkadot (DOT) and Cosmos (ATOM). They do have this handy chart showing that when it comes to multiple criteria to measure itself on as a project, and they are hitting it on all levels.

Of course, why would they make an infographic and say they are worse than any of their competition lol.

In order to fully understand the pros and cons vs. other projects I would need to also look more into competitor documentation and see the problems they are focusing on as well as the solutions that are being provided.

Tokenomics and Market Cap

The total supply of MATIC is a fixed amount of 10 billion tokens. Below is the initial breakdown of who got the initial supply.

Below we see the release schedule of the MATIC supply over time. You’ll see that eventually smaller and smaller amounts will be introduced into the circulating supply, which may actually put pressure on the underlying token value to the upside if demand continues to grow exponentially.

Currently the Polygon project is worth around $2.11/token and a market cap close to $15 billion. At this point, those early investors and the cofounders are sitting on a very nice return since the project’s inception.

The circulating supply stands at around 7 billion token already released. It is always hard to determine an intrinsic value for any cryptocurrency, but at this point in the cycle I always try to follow where the development is happening. If the polygon network gets adopted by developers while both users and usage grows, that should benefit the value of the token in the long term.

Polygon Integrations

All of the above is cool in theory, but the value of the network comes from people using the technology and building on top of the polygon blockchain. Looking at Dappradar, we can see which projects are implementing the use of polygon.

You may recognize some names in SushiSwap(DeFi exchange) and Aave (DeFi crypto lending) that have introduced a polygon version of their application.

We can also look at the growth in number of transactions through polygon to measure the use outside of number of projects alone. We see a pretty large explosion in transactions right around May of 2021.

So as long as they continue to have DeFi and NFT marketplaces like OpenSea adopt the tech, then I can see these numbers only going up.

Using Polygon (MATIC)

In order to use polygon through a decentralized application there are two main ways.

You can buy the MATIC off of an exchange and therefore already have the cryptocurrency that is on the blockchain itself (easier option) and send it to a browser wallet like MetaMask to use in DAPPs.

Or you can bridge other cryptocurrencies like Ethereum and swap it for polygon. There are some fees associated with this process, but I can explain the concept.

You would go to the bridge website and let’s say you only had Ethereum in your MetaMask wallet. If you connect your wallet and bridge that ether to the polygon network, it would be wrapped ETH (Ether that is now on the polygon network and you can use it on the polygon network with hopefully faster transaction time and lower fees).

Once you want to take that wrapped ETH off of the polygon network, you would go ahead and withdraw and you would get your regular ETH back which is now on the Ethereum blockchain once again.

You can think of bridging like actually crossing a bridge over water. One side of the bridge represents polygon and the other side is the crypto that you are moving onto the polygon network. When you cross the bridge in either direction you have to pay transaction fees and wait to cross (which can be expensive depending on the crypto you are wrapping and it’s gas fees).

I would say this whole bridging process and larger fees attached to it should be added to the con bucket as it offsets the pro of lower transaction fees on the polygon network itself with these bridge transaction fees.

Conclusion

I think that scaling solutions are crucial to the success of the entire crypto ecosystem.

While the majority of my own crypto investments are more in these platform protocols, I can see the value proposition of scalability crypto projects that revolve around these base layers. I know that these projects don’t have to connect back to another blockchain, but that seems to be the main solution as of now.

I look forward to how the polygon project progresses and excited to see how it can help expand the capabilities of the crypto space in general.