2023 Crypto Watchlist — Polygon
Along with an investment analysis is a background of the cryptocurrency, which may be helpful for new audiences. It’s always good to refresh on fundamentals! Also, this is not financial advice.
Polygon (MATIC)
What it is
Polygon is a layer 2 scaling solution for Ethereum, which aims to enable faster and cheaper transactions on the Ethereum blockchain. Polygon is interoperable with Ethereum, meaning that it is built on top of Ethereum and can communicate with Ethereum’s main network and other Ethereum-based networks.
Polygon uses a variety of technologies and protocols to enable faster and cheaper transactions, including sidechains, plasma, and proof of stake (PoS) consensus.
Sidechains allow transactions to be processed on separate chains that are connected to the main Ethereum chain, which can help to reduce congestion on the main chain.
Plasma is a framework for enabling off-chain transactions, which can also help to reduce congestion and improve scalability.
PoS is an alternative consensus mechanism to proof of work (PoW), which is used by Ethereum, and it allows users to validate transactions by staking their tokens rather than by solving complex mathematical puzzles.
Overall, Polygon aims to provide a scalable and interoperable infrastructure for Ethereum and other Ethereum-based networks, which can help to enable faster and cheaper transactions and to support the development of decentralized applications (DApps) and other decentralized protocols and systems.
Ultra Simple Description
Polygon is a platform built on top of Ethereum that enables faster and cheaper transactions on the Ethereum blockchain. Polygon can communicate with Ethereum’s main network and other Ethereum-based networks. Polygon charges a fee for every transaction that is processed on the platform, which is paid in the form of its native token, called MATIC.
Analogy
Polygon can be thought of as a network of express lanes on a highway. Just like a highway has regular lanes and express lanes, Ethereum has a main chain and Polygon’s layer 2 scaling solution.
The main Ethereum chain is like the regular lanes on a highway. It can handle a certain amount of traffic, but it can become congested and slow during peak times.
Polygon is like the express lanes on a highway. It is built on top of Ethereum and is interoperable with it, but it has its own separate lanes and infrastructure. These express lanes are designed to handle a higher volume of traffic and to enable faster and cheaper transactions.
Just like users can choose to use the regular lanes or the express lanes on a highway, users can choose to use the main Ethereum chain or Polygon’s layer 2 scaling solution. The express lanes on a highway typically have a toll, and users have to pay to use them. Similarly, Polygon charges a fee for every transaction that is processed on the platform. These fees are paid in the form of Polygon’s native token, called MATIC.
What it Does & How it’s Used
Faster & Cheaper TX’s on Ethereum: The Ethereum network can get very congested will all of the traffic, causing transactions and fees to balloon at times. Polygon fixes this issue on Ethereum with various in-house solutions that are directly connected to the Ethereum network so that the integrity of the network is never lost.
The in-house solutions from Polygon:
Sidechains: Sidechains are separate chains that are connected to the main Ethereum blockchain. They allow transactions to be processed on separate chains, which can help to reduce congestion on the main chain.
Plasma: Plasma is a framework for enabling off-chain transactions. It allows users to transact off-chain and then periodically settle their transactions on-chain, which can reduce the load on the main chain.
Proof of Stake (PoS): PoS is an alternative consensus mechanism to proof of work (PoW). It allows users to validate transactions by staking their tokens rather than by solving complex mathematical puzzles. This can help to reduce the energy consumption and increase the scalability of the network.
Why it’s a Good Investment for 2023
Polygon is one of the largest layer-2 solutions built for & on top of the largest layer-1 solution. A great indicator to track adoption, trust, and usage on any network is the TVL, which can also have an impact on the price of the token/asset that’s used to participate in the protocol or platform.
Total Value Locked (TVL) is a metric that is used to measure the amount of value that is locked up in a particular DeFi protocol or platform. People might choose to lock up their assets in a DeFi protocol for a variety of reasons:
- Potential to earn yield or interest
- Participate in governance
- Leverage their assets
- Earn rewards
Polygon’s TVL as of 12/25/22 is nearly 1 Billion USD, which is about 1.25 Billion tokens of MATIC (the native token for Polygon). Considering that there’s 8.7 Billion Matic tokens in circulation, that means that 14.4% of the entire circulating supply is locked up.
Polygon has also seen nothing less of 2 million transactions on its platform per day since May 7th of this year.
Personal Opinions
As with Ethereum, I, personally, stick to the philosophy of investing in tokens where the parent protocol has a rich and growing base of users (developers). The developers that are using Polygon to launch their products onto the Ethereum network are growing exponentially, even in the bear market.
