Simply Explained: Polygon (MATIC)

Since its inception, Ethereum has brought so many innovations to the cryptocurrency space, from smart contracts to high interest-paying decentralised finance applications. However, Ethereum faces 2 major issues that make it difficult to scale.

1. Poor throughput: Ethereum is only capable of processing around 30 transactions per second (TPS). This is very low in comparison to projects like Polkadot, which has a TPS of around 1,000, and Solana which has a TPS of 65,000.
2. Very expensive: Ethereum uses a validating method called Proof of Work (PoW), which is not an effective method for fast affordable transactions. Typical Ethereum transaction fees are around $20, compared to <$1 on other blockchains like Solana and Cardano. For effective ways to deal with gas fees check out our crypto school piece.

Leveraging Ethereum & addressing these scaling issues

Now, most people reading this will have already heard of Ethereum 2.0 and the plans the team has for scaling in 2022. However, In 2017, a team of three Indian developers set out to take Ethereums problems into their own hands and address the problems.

This led to the creation of MATIC, now known as Polygon Network. An interesting note is that even though the project was rebranded, the coin is still known as the MATIC coin.

What is Polygon?

To sum it up in a super simplistic, 50% accurate, but attention grabby way Polygon is “Ethereum with low gas fees.”

However, there is a lot more to it and this is the purpose of this Simply Explained.

Polygon started as a layer two (L2) scaling platform that aims to address the problems Ethereum faces, whilst leveraging Ethereum’s security. Its main focuses are: increasing the usage of DeFi  applications by addressing the speed and affordability issues and making it easy for blockchains to work together

Faster and cheaper

Polygon addresses the scaling issues using a few methods. The main one is a proof of stake mechanism (PoS).

Proof of stake is a method used to validate transactions. It is used by blockchains such as Solana and Avalanche. The difference between PoW and PoS is that instead of anyone being able to validate transactions, validators must first stake tokens to have the chance to validate. There is also no block reward; rather, validators are incentivised by taking a small fee from every transaction they validate.

Less power, less competition, less throughput. This makes things a lot more cost-effective, energy-efficient and scalable.

Polygon’s proof of stake goes a step further. Polygon uses something called a commit chain. This is a chain directly linked to the Ethereum chain, but instead of tracking everything like a recording as Ethereum does, it takes a snapshot of the data and sends it to the Ethereum chain. This means way less data is processed and Polygon is able to be much faster. Compared to Ethereums 30, Polygon has a TPS of 65,000.

Users stake their MATIC tokens in order to become Validators for the Polygon Network.

Interoperability and multi-chain

Interoperability means the ability to share information between different, but similar systems. Whether between different products (think Apple and Microsoft), or applications in different ecosystems.

For example, regardless of what phone network people use, it’s possible to call anyone on the planet as long as they have a working phone and a signal.

Whether you’re with EE, Vodafone, T-Mobile, Verizon – a phone call is a phone call.

Now imagine if we could only call people who were on the same network as us! What a mess, right? Cellphone technology would remain so limited and adoption rates would stay low.

This is the limitation issue polygon is tackling.

The Tokenomics of Polygon

3.8 per cent of MATIC’s max supply was issued in 2017. In the April 2019 launchpad sale, another 19 percent of the total supply was sold.

The remaining MATIC tokens are distributed as follows:

1. Ecosystem tokens: 23.33%
2. Foundation tokens: 21.86%
3. Team tokens: 16%
4. Network Operations tokens: 12%
5. Advisors tokens: 4%

All MATIC tokens are expected to be in circulation by December 2022.

The biggest risk factor with Polygon is Ethereum 2.0 leaving the project redundant. Although L2s are a fascinating space that is performing well, what will happen when the layer 1s built under them start to address the problems for themselves? What’s your take? Are you bullish on L2s? Do you see them becoming redundant as L1s address their own scaling issues?

For Cryptonary’s transparent take and opinion on Polygon, check out the Ratings Guide here.

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.