What you need to know about Polygon’s plans to create a “value layer of the Internet”.
A bear market is for building, and Polygon Labs has been using these long months to do just that.
One of the most used blockchains with around 1.5 million weekly users, over 2.3 million daily transactions, and thousands of DApps, Polygon has been facing increasing competition recently. While it is still ranking as the third most popular network by number of transactions and users, the likes of Arbitrum, Optimism, Tron, and Base are developing fast and steadily eating into Polygon’s market share.
This process is particularly noticeable in TVL, or total value locked, with Polygon’s share dwindling from 8.3% in 2021 to just 2.2% now.
Fortunately for the protocol, the brains behind it have undertaken a comprehensive overhaul, introducing a number of monumental upgrades aimed at returning Polygon to the forefront of web3 and making it the basis for the so-called “value level of the internet”.
These changes include zkEVM as a new transaction powerhouse, the vision of multiple sidechains working as one, new governance structures, and the introduction of a new token. Furthermore, Polygon continues to forge new partnerships, engaging more and more web2 companies into web3.
These changes within Polygon reflect the broader direction the entire crypto space, so let’s see where it is going exactly.
From a technical perspective, zero-knowledge rollups have been the hype of the year. Although not a new concept, it played a central role in several major projects, such as zk-sync or StarkNet (we wrote about them previously).
A quick reminder:
💡 Zero-knowledge proof is a cryptographic method by which the prover can show that they have access to a piece of information without necessarily revealing it.
💡 Zk-rollup is a layer-2 scaling solution for blockchains that bundle millions of transactions into one, easing the load on the base layer and spreading the cost of one transaction across many users. The rollups process transactions, perform computations, and store data off-chain while holding assets in an on-chain smart contract.
Polygon joined the Zk race by releasing zkEVM, an equivalent to Ethereum Virtual Machine that uses zk-rollups to execute smart contracts faster and cheaper, all while maintaining compatibility with Ethereum.
Released as a separate blockchain in March, Polygon zkEVM has registered over $136 million worth of deposits and over $46 million of TVL (Dune Analytics).
Successfully introducing zk-rollups must have marked an intellectual breakthrough for the Polygon team, as they decided to go all in on the ZK technology.
Formulated this summer, Polygon 2.0 is a “vision for unlimited scalability and unified liquidity”, or in other words, a network of ZK-powered layer-2 chains, unified via a novel cross-chain protocol. This concept reimagines almost every aspect of the Polygon ecosystem, from governance to consensus, and even tokenomics.
Blockchain that has been often criticized for its centralization, Polygon will now foster public discussion and decision-taking via PIPs (Polygon Improvement Proposals), according to the framework used by every major blockchain. An ecosystem council and a community treasury are also in the works.
The first set of PIPs (Polygon Improvement Proposals) was released two weeks ago.
Currently, Polygon works as a Proof-of-Stake chain that is secured by its validators. Introducing zk-rollups would bring additional security, leveraging Ethereum to cryptographically verify batches of transactions.
However, publishing transaction data to Ethereum can be quite expensive, leading Polygon to design its own blend of zk-rollups called validium. They post only lightweight validity proofs, while transaction data is made available off-chain, thus reducing fees and increasing scalability.
Importantly, these changes are designed to seamlessly integrate into the current user and developer experience, requiring node operators and validators only to update their software.
After the upgrade, Polygon PoS and Polygon zkEVM will remain two public networks of the Polygon ecosystem, the former (validium-based) offering higher scalability, and the latter (zk-rollup-based) – higher security.
Polygon 2.0 is presented as a much bigger construct than Polygon PoS, and it is logical that it would have its own currency.
The new token $POL is set to replace $MATIC as a native coin used to pay transaction fees across the Polygon ecosystem. Validators will be able to stake $POL across multiple Polygon chains.
What about the supply? $MATIC’s entire supply of 10 billion coins was issued at the chain’s inception in 2019 and progressively released until reaching full vesting last year.
The new token $POL will allow for a one-to-one migration of $MATIC, hence its starting supply will also be 10 billion. The difference in tokenomics, however, is that $POL will have an additional yearly emission of 2% distributed between validator staking rewards (1%) and a community treasury (1%).
This inflation will effectively dilute the value of $MATIC. However, if the team’s bet on Polygon 2.0 pays off, the additional business should compensate for it.
Users will have 4 years to convert their tokens.
A point can be made that Polygon has built its reputation in large part thanks to the partnerships it secured. The company made a lot of headlines by bringing to web3 the likes of Starbucks, Disney, NFL, Nike, Mastercard, Reddit, Flipcart, Shopify, Deaftkings, Stripe, Adobe, Salesforce, Franklin Templeton…
Most of them leverage Polygon as a base for NFTs or payment services, but the newest partnership with Google Cloud shows that these ambitions go further.
Indeed, this week, Google Cloud officially joined Polygon PoS as a validator.
The move is applauded by some (such a “serious” validator bringing its weight to the blockchain) and denounced by others (tech giant’s presence among the validators can compromise the network’s censorship resistance). However, it is representative of the growing proximity between institutions and blockchains.
According to Polygon’s blog post, the end goal of its great transformation is to create a “Value Layer of the Internet”,🌐 allowing anyone to create, exchange, and program value.
The plan comes with its set of tradeoffs, such as storing a part of data off-chain to ensure validiums are scalable, bringing institutions into the validating business, and increasing token supply. However, in our opinion, it is indicative of the larger crypto space, which evolves by incorporating new technologies and sometimes making concessions. The most important thing is to ensure that decisions are taken collectively, and Polygon’s governance update – although a bit late to the party – is much welcome.