Polygon: Ethereum Layer 2 Scaling Solution
Polygon (Formerly Matic Network)
Introduction
Polygon is a “Layer 2” scaling solution for the Ethereum Network, with its native MATIC Token. Formerly known as the Matic Network, Polygon is a protocol and a framework for building and connecting Ethereum-compatible blockchain networks. It aims to be “Ethereum’s Internet of Blockchains.” Sound familiar? That is because this vision is similar to projects like Cosmos and Polkadot, with a big exception. Because Polygon is native to the Ethereum Network, Polygon is able to leverage the security, robustness, and network effects of the Ethereum Network because it wants to work with Ethereum, unlike the former examples that aim to be competitors of Ethereum. This mutualistic relationship will make Polygon a powerful player in the crypto space. Polygon is a very exciting project, both due to its impressive vision and greatly increasing token value over the last few months. But before we can make any big speculations, lets dive into the nitty-gritty of Polygon.
Background
Matic Network was founded in 2017 by Jaynti Kanani, Sandeep Nailwal and Anurag Arjun. These 3 are seasoned software developers, with Jaynti being one of the main architects of the improved version of the Plasma Scaling Solution for Ethereum that was proposed by Vitalik Buterin which would become part of the Matic Network. Matic Mainnet was launched in May of 2020 and saw massive adoption in the following months due to their implementation of the “More Viable Plasma” solution. Matic Network rebranded to Polygon on Feb 9th, 2021. This marked an expansion in their original scope of just being a scaling solution for Ethereum, now focusing on enabling Ethereum to become a multi-chain system with increased security, flexible scalability, and lower transaction costs. This is Polygon’s vision of becoming Ethereum’s Internet of Blockchains.” That being said, do the technicals of the project support Polygon’s ability to turn this vision into a reality?
Technicals
The current implementation of Matic Network is the Plasma Layer & The Matic POS Chain. These are referred to as the Bohr Layer and Heimdall Layer, respectively, by the Polygon Team. The Plasma Layer creates a copy of the Ethereum blockchain, which are referred to child-chains. The Child-chains periodically submit snapshots of the child chain to the parent chain (which is Ethereum) for integration. To better understand how this works, we must explore the 3 layers that make up the Matic Network. The first Layer is the smart contract layer that is built on the Ethereum blockchain. This is how the Matic Network connects with the Ethereum Mainnet and includes smart contracts associated with staking, delegation and Dapp communication. The second Layer is known as Heimdall, the PoS (Proof of Stake) layer where validators are situated. This layer is built off of Tendermint (which is the core architecture for the Cosmos Network). Validators on this layer publish periodic summaries of block transactions to the Ethereum network, these are known as Checkpoints and occur every 5 mins. There is a maximum of 120 Validators on the Heimdall Layer. Validators on Matic earn staking rewards and a cut of network fees, but they do not generate the blocks. Block generation happens on the third layer, known as the Bohr Layer. This is the Plasma Layer of Matic Network, where Eth developers can relaunch their smart contract Dapp onto the Matic network. There is a maximum of 10 block producing nodes, and currently all of which are hosted by the Polygon Team. This centralization of Bohr Nodes is what allows the Matic Network to have a high throughput of 7,000 – 10,000 TPS. This high TPS is only for 1 Matic sidechain, if 10 sidechains are implemented the theoretical TPS for the network could reach a high of 100,000 TPS. This number is quite astounding, especially as the current TPS for the Ethereum network is around 3,000 TPS. But what is the cost of all of these transactions? 1,000,000 transactions have a cost of roughly $1, which is amazing given the extreme costs seen recently in transaction on the Ethereum Network. Future Improvements to the Network include technologies like zk Rollups, Optimistic Rollups, Stand-Alone Chains, and Shared Security Chains
Tokenomics
The MATIC Token is the native token to the Matic Network. MATIC is used for transaction fees on the Bohr Layer and for staking/delegation on the Heimdall Layer. MATIC can be staked and delegated on the Matic Web Wallet. Staking reward currently range between 4.5% and 450%, depending on the percentage of Matic that is currently staked on the network. MATIC’s price action has been extremely impressive since the start of the year. It has seen an increase from around $0.02 at the beginning of 2021 to a current price around $1.81. This is a 7500% increase to date, with an almost 9,000% increase to its recent all time high price of $2.68. This price action was seen not only due to the popularity of the coin by cryptocurrency speculators, but also due to the success of many of the dapps that are now running on the Matic Network. Another interesting note on adoption comes from Ethermine.org, one of the largest ETH mining pools, that has updated it payout policy to allow miners to be paid out directly to the Matic Network instead of the Ethereum Mainnet (If you are interested in this you should check out my article on Ethereum Mining, where I go more specifics on why this change was implemented). All of this being said, the MATIC token is in for a big year. Its increase in use and adoption due to the decreased costs, faster transaction times, and increasing number dapps being deployed to the network are all good signs for the MATIC tokens value.
Conclusion
Polygon has great potential in the upcoming months due to it solution to the issues plaguing transacting on the Ethereum Network. With current fees for interacting with Defi Protocols (ex: AAVE, Yearn.Finance, etc.), executing transactions on Ethereum DEXs (ex: UniSwap, SushiSwap, etc.), or even minting NFT's on the Ethereum Ecosystem being astronomically high due to high network congestion as well as the impressive price action of ETH in recent months; there is a demonstrated need for a scaling solution like Polygon. With is great speed, low fees, and native DEXs like QuickSwap; Polygon is in a great place to help Ethereum scale for while Ethereum 2.0 is still in the works. If Polygon also successed in building an “Internet of Blockchains” for Ethereum it could see major use far into the future. But only time will tell if this scaling solution sees widespread adoption now and as new scaling solutions come online for Ethereum.