Polygon: What We Know About ‘2.0’ (Cryptocurrency:MATIC-USD)

A lot has happened since our last article covering the Polygon (MATIC-USD) network in late March. This year has been an interesting year for the Polygon network and his MATIC token.About 3 months after release Polygon Labs, a zkEVM chain that exists separately from Polygon’s original Proof of Stake chain, recently announced plans for “Polygon 2.0”.

elephant in the room

I am not going to delve further into this article without first acknowledging that Polygon has recently been designated an unregistered security by the US Securities and Exchange Commission. In the agency’s lawsuit against Binance (BNB-USD) in early June, the SEC accused the exchange of selling unregistered securities to its customers.

As part of that indictment, the agency has designated Cardano (ADA-USD), Solana (SOL-USD), and Polygon (MATIC-USD) below. Other coins of 6 or more may be unregistered securities as well. Since this designation, MATIC has fallen more than 25% of his, lagging far behind other coins in the cryptocurrency market.this is what i wrote About the regulatory risks of the MATIC acquisition last year:

Polygon has significant regulatory risk in the United States. The market continues to seek clarity on whether MATIC is considered a synthetic commodity, currency, or security. I don’t want to get in the way of how the federal government views MATIC, but in my opinion, if the SEC receives regulatory oversight over Polygon, it will probably have a significant negative impact on the coin’s price.

The SEC is currently claiming jurisdiction. Whether this planted flag will bear any fruit for the SEC is anyone’s guess, but judging by the 25% drop in MATIC prices since designation, it’s much closer to pricing in that risk than it was in December. I can say Since MATIC is used as a settlement for network transactions, it has the nature of a commodity or currency. However, his IEO took place through Binance in 2019. The latter lends credence to the idea that MATIC could be considered a security.

In my personal opinion, it still needs to be clarified as to whether MATIC is really a security. However, it is also important to remember that distributed ledger blockchain networks are global. If MATIC is finally granted regulatory oversight by the SEC, non-compliance with SEC regulations could theoretically result in a US consumer being geo-blocked from dApps utilizing his Polygon network. .

Porygon 2.0

upon June 12, Polygon Labs announced “Polygon 2.0”. This new version of Polygon has been dubbed the “value layer of the Internet” by its proponents. Although the Internet has enabled increased information access and speed at the user level, one area where the Internet is still hampered by analog systems is the transfer of value and authentication of ownership. According to Polygon Labs:

The Internet has democratized access to information. The Value Layer democratizes access to the global economy. This will enable decentralized finance, digital ownership, new mechanisms for coordination, and more. This is the missing part of the Internet serving users rather than gatekeepers, rental seekers and intermediaries.

Fundamentally, Polygon wants to be the property-owning layer of the Internet. In building this, Polygon suggested updating his main PoS chain and how the network will be managed in the future.

Although the details of all these proposed changes are not yet known, we know Polygon Labs wants a “purple merge” from mainchain PoS to zkEVM Validium. Polygon just launched another zkEVM earlier this year, so for the rest of this article, we will refer to his post-migration PoS network as the “zkValidium” chain to avoid confusion.

If accepted by the community, this upgrade will be an incredible technical achievement. It’s the first time an existing chain (especially of this scale and importance) adds her ZK proof to become L2.

Validium is a little different than rollups because not all transaction data is stored on the Ethereum (ETH-USD) blockchain. In practice, this allows for faster and more cost-effective network activity. However, it comes with some trade-offs. For example, off-chain data requires greater trust in operators. If something catastrophic happens to Polygon’s zkValidium network, it may become more difficult to prove previous ownership status as some of the pre-catastrophe data is not publicly recorded on-chain. there is.

From a user’s perspective, the transition from PoS to zkValidium should be seamless for the overwhelming majority of developers today. According to Polygon Labs, validators will need to upgrade to the new software, but users and developers should experience no friction moving from PoS to zkValidium. Of course, this is only if the wider community wants to carry out the plan. All this discussion so far is pre-proposal, as there is no official PIP of him yet. They are said to appear later this year, with plans for a finished product in Q1 2024.

Impact on MATIC?

The proposed changes to the PoS network raise some unanswered questions. One of the big changes when Polygon launched the zkEVM chain earlier this year was the token utility of the MATIC coin. His PoS chain on Polygon utilizes his MATIC as a gas payment coin for transactions. Polygon’s zkEVM chain uses ETH for gas fees and instead utilizes MATIC for staking only. All we know so far about the PoS/zkValidium proposal is that MATIC will continue to be used for staking. I don’t know what the post-migration gas with Polygon Advisor will be used for. Pete Kim guessed Make sure it’s still MATIC.

As far as I know, Polygon PoS still uses $MATIC for gas after zk-validium migration, unlike Polygon zkEVM. otherwise it is not backward compatible.

David Silverman, VP of Product at Polygon Labs, added some important background and suggested that ultimately the Polygon community will decide how to use MATIC.

The Polygon community will collectively discuss and decide together the best way to move PoS to zkValidium. For me, MATIC as a native token is the most backwards compatible.

From my perspective, maintaining utility as a gas payment token is one of the main reasons MATIC remains in my top 5 cryptocurrency portfolio. I suspect that the broader Polygon community, like me, would find it detrimental to MATIC’s bullish theory to lose its usefulness. So if the community can really decide how the token is used, I see that as unlikely. However, we candidly admit that MATIC could become a pure play staking token for Polygon 2.0.

Growth of zkEVM

After the launch of zkEVM in late March, TVL growth on Polygon’s rollup chain slowed until mid-May. Since then, he has risen from $5.4 million on May 10 to about $43 million about six weeks later, and the trend has become even more pronounced.

The main catalyst for this TVL spike on the zkEVM chain appears to be a reaction to a May 10th tweet by the Polygon Labs founder. Sandeep Neirwal This suggests there will be a MATIC airdrop at some point in the future.

Also, good things take time. Remember, it took over a year for Arbitrum One to fully bloom. The Polygon zkEVM ecosystem has been significantly enhanced with critical infrastructure deployments such as Safe, introduction of oracles like Chainlink, early developer feedback to improve his UX, and cost optimization using data compression. are preparing for Additionally, there is no rule that existing tokens cannot perform large airdrops. If there’s one thing about Polygon that’s beyond doubt, it’s adoption.

Bold my emphasis. This explains much of the L2 activity seen on other ETH scaling chains such as Arbitrum (ARB-USD), Optimism (OP-USD), StarkNet, zkSync Era, etc., by airdrop hunting. In late March, I said:

However, even a small chance of an airdrop can lead to increased speculator activity. This element is absent from Polygon’s zkEVM as Polygon already has a native token in his PoS chain.

Apparently Polygon can hang airdrops. It remains to be seen if MATIC will be airdropped to her Polygon’s zkEVM depositor. I don’t know if the airdrop model has proven so successful at this point, but it seems the development team is still considering it.

summary

Polygon is clearly at a transformational moment in the chain’s history. From a usage perspective, Polygon remains one of the most widely used networks in the crypto market, maintaining its dominance among daily active users of the Ethereum scaling chain.

With an average DAU of 370,000, June is shaping up to be the eighth of the past nine months with an average of at least 300,000 daily active users. According to Token Terminal, Polygon has consistently recorded more average DAU than Arbitrum and Optimism combined.

While there are clear regulatory concerns with this network, I doubt the hostile SEC is factored in, at least to some extent. Additionally, BlackRock’s (BLK) Spot Bitcoin (BTC-USD) ETF proposal may signal that the SEC’s actions on cryptocurrencies are losing support from leading financial institutions. Of course, this is pure speculation on my part, and the Spot Bitcoin ETF filing does not indicate broader acceptance of cryptocurrencies on TradFi.

What we do know is that Polygon Labs has high ambitions for their network, and the success of the network being built today should benefit MATIC’s price. Among a diversified cryptocurrency portfolio with a long-term outlook rather than just a few months, I still think MATIC deserves attention.

Editor’s note: This article describes more than one microcap strain. Please be aware of the risks associated with these stocks.