Polygon - the crypto apex predator
I
n 2021 the network congestion problems in the Ethereum blockchain came to a head as users were hit with slow transfers and high transaction fees. Investors started looking for alternate blockchains such as Polygon.
In this guide:
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What is Polygon?
Polygon should not be mistaken as another blockchain. Rather is is a layer 2 scaling solution building on Ethereum adoption by using sidechains whilst ensuring security using proof of stake validators.
The Polygon project began in 2017 as an Indian venture, initially in Bangalore but has since moved to Mumbai. The mainnet launch was in March 2020 – it quickly grew in popularity as a means to engage in yield farming affordably.
Some of the more well known decentralised applications (dApps) include:
- Cometh
- QuickSwap
- KogeFarm
- PolyYield Finance
- Iron Finance
- Polycat Finance
What is the purpose of Polygon?
The motivation for Polygon is brought about as a result of issues with existing blockchain technologies. Those being high transaction fees and low throughput.
Insane scalability
In recent years we have begun to see blockchain adoption as influencers such as Elgon Musk popularise cryptocurrencies. It should be remembered that a blockchain is a giant public ledger comprised of blocks that include details of every technology. Given the increase in these transactions, maintaining these chains has become difficult.
Chains have become congested and consequently gas prices (transaction fees) have increased exponentially. This is particularly evident on Ethereum. It was the limitations in these early blockchains that has led to the likes of Polygon being created.
Polygon rightly holds the crown as being the layer 2 scaling solution of choice for Ethereum – nothing else comes close. In the 2 years in which Polygon has been operating it is approaching 1.5 billion transactions. For comparison, Ethereum has around 1.5 billion transactions and Bitcoin has 700 million.
In its current incarnation, Polygon has the potential to scale to 65,000 transactions per second. For reference, the Visa network claims to handle 24,000 transactions per second.
This proven scalability performance has led some very popular decentralised applications (dApps) to build on Polygon. These include Decentraland ($LAND), SushiSwap ($SUSHI) and Aave ($AAVE).
Cutting edge technology
Polygon comprises of several products for scaling Ethereum:
- ZK-rollups – Rollups are a level 2 scaling technology that increase scalability by rolling multiple transfers into a single transaction. In the case of where Plasma takes one transaction per transfer, ZK-Rollups bundle many hundreds of transfes into a single transaction.
- POS Chain – The main Polygon chain is referred to as an Ethereum sidechain known as the Matic Proof-of-Stake chain. This POS is more environmentally friendly, faster and more scalable than proof-of-work (used in Bitcoin).
- Plasma Chains – The Ethereum scaling solution used on Polygon to move assets between the main and separate side chains is known as Plasma bridges.
Security and interoperability
Polygon has found particular popularity amongst retail traders. It is calculated that 65% of all transactions on Polygon are for less than $100 – 85% of Polygon transactions are for less than $1,000.
Burning Polygon
In 2021, the Ethereum project introduced the EIP-1559 upgrade in which $ETH tokens were burnt after every transaction. On some days more Ethereum was burned than was actually created. This transformed Ethereum from an inflationary asset to a deflationary one.
Deflationary tokens are more attractive as the effect of reducing the supply of an asset should in theory increase the price.
The relevance of the above to Polygon is the introduction of token burning on the 18th January 2022. In contrast to Ethereum, Polygon has a maximum supply – i.e. the time to buy Polygon is now!
Comparisons with Solana
It’s easy to draw comparisons between crypto projects such as Polygon and Solana that seek to achieve the same goals. Solana is a great project but the recent network crashes lasting several days of severely damaged its reputation.
The Solana Foundation reported in January 2022 that the outages where as a result of an overwhelmed network with a transaction throughput exceeding 400,000 per second cuasing Solana’s validators to crash as they ran out of memory.
Earn rewards by saving
| Organization | Deposit assets | Reward assets | APY Rate |
|---|---|---|---|
| OKEx Saving |
|
| 123% - fixed (5 days) |
| OKEx Saving |
|
| 60.0% - fixed (7 days) |
| Nexo Saving |
|
| 16.0% - flexible |
| Nexo Saving |
|
| 14.0% - flexible |
| Swyftx Saving |
|
| 12.8% - flexible |
| KuCoin Saving |
|
| 12.0% - fixed (30 days) |
Polygon (MATIC)
Nexo (NEXO)The best staking rates
| Organization | Deposit assets | Reward assets | APY Rate |
|---|---|---|---|
| OKEx Staking |
|
| 21.3% - fixed (15 days) |
| OKEx Staking |
|
| 12.0% - fixed (60 days) |
| OKEx Staking |
|
| 10.1% - fixed (90 days) |
| Ascendex Staking |
|
| 10.0% - fixed (5 days) |
| Staked Staking |
|
| 9.60% - flexible |
| OKEx Staking |
|
| 8.55% - fixed (30 days) |
Closing thoughts
Polygon is not without its detractors. The project has been criticized for its centralisation. In some instances, between 1 and 8 people could be required to secure a smart contract. What would happen to the project if half of those people were to die in an accident?
Centralisation is the enemy of blockchains. Ethereum founder Vitalik Buterin has been hesitant about Ethereum becoming reliant on Polygon.
Despite the issues around centralisation, we are incredibly bullish on Polygon. It looks set to become a keystone when we envisage how the blockchain will be used in the future.
Chris
An editor at CoincropChris is a Crop Crop staff writer based in the UK, covering the best rates for cryptocurrency earning and borrowing products. When not at work, he's likely assembling lego models.
