These are not easy times for crypto projects. Because of the market downturn, the outlook is rather bleak, but some still manage to pull through.
This is the case of Polygon 🔥
A bit like the indomitable Gauls of the Asterix gang, the Ethereum sidechain, which has become a reference in NFTs, continues to grow and multiplies collaborations with large companies: Walmart, Meta, Starbucks, Reddit. The list is long!
How to explain such a success? That's what we wanted to understand 🐳
One of the main advantages of Polygon, whose network was launched in 2020, is undoubtedly its low fees. They very rarely exceed a few pennies, and that's a real strength in the NFT ecosystem and in a time like ours when money isn't flowing.
Then there is also the speed of the transactions, which take just over a few seconds to execute, while being fully interoperable with Ethereum: all transactions that pass through Polygon are registered in the registry of the second largest blockchain on the market.
"Polygon launched at the right time," explains Quentin de Beauchesne (*), co-founder of the startup Ownest and a validator on the network since 2020. "In February 2021, at the height of the crypto boom, Ethereum reached its limits: the network was unusable for those with limited funds and Polygon was able to pose as a complementary solution."
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"It's simple," he continues, Polygon, which is backed by venture capital giants like Sequoia and Softbank and Web3 (Coinbase, Animoca Brands...), "has reached as many daily transactions as Ethereum in less than two months."
Today, it is about three times as much!
Polygon claims to have the potential to handle up to 65,000 transactions per second (compared to 15 on Ethereum). In reality, we are still very far away: the network currently registers "only" 40 transactions per second, probably also because the market is much less active.
The market capitalization of its MATIC cryptocurrency is currently $9 billion (compared to Ethereum's $200 billion). Its token has been the darling of the markets for the past two years. Investors, who sensed the good news and bet on the adoption of the protocol, pounced on it during private sales 🤑
A perfect partner for Ethereum
Beyond tech and finance, Polygon's good move was to play it off with Ethereum. "There's clearly an ideological alignment," says Jimmy Ragosa, Ethereum expert and advisor to the Sismo project.
"All of the people advising Polygon are players who are known and appreciated by the Ethereum community," he adds. It's a pretty smart choice, as projects can tend to compete fiercely.
"By presenting itself as a complement to Ethereum, Polygon has avoided falling into the category of 'Ethereum Killers' like Solana or Cardano," Jimmy Ragosa continues.
Reddit, Meta, Starbucks...
As a result, Polygon attracts projects like flies, and not only in the Web3 ecosystem. It is even on the side of "traditional" companies that the protocol is gaining the most ground.
Polygon has signed on with social network Reddit, which we heard a lot about in 2021 during the stock market craze around GameStop.
Over 6 million Reddit users have set up a wallet to receive NFTs created by the social network. That's more than the number of users of OpenSea, the largest NFT exchange platform! 😅
Despite the overall drop in prices and activity in Web3, the activity of NFTs on Polygon has been steadily increasing, as this chart shows.
Polygon has also been chosen by Meta (formerly Facebook) as the protocol to create NFTs directly in Instagram. "A platform of this size will help us move over a billion users into Web3," said Sandeep Narwal, the Indian co-founder of the protocol, in early November
Another giant to have recently cracked: Starbucks. The American group has developed its new loyalty program with Polygon. Currently in beta test, "Starbucks Odyssey" will allow customers to collect NFTs of the brand and access exclusive experiences.
You want more?
Because there are still others! Nike will launch a virtual apparel platform (.Swoosh) based on Polygon in 2023, a similar choice to that of former U.S. President Donald Trump for his collection of NFTs. Even the American retail giant Walmart is working with them!
"They're really good at communication. They were among the first to emphasize their low energy expenditure," says Ouriel Ohayon, co-founder of the ZenGo wallet, which has been compatible with Polygon for a few weeks.
This strategy allowed them to ride the "responsible" and "green" wave before Ethereum's Merge that took place in September 2022 (it reduced the protocol's energy consumption by changing its consensus algorithm, ed. note). "It clearly gave them a head start on the others," he says.
When most experts are asked, the efficiency of Polygon's sales teams is also very common.
"Polygon recruited a lot of people from large Web2 groups and used their skills and contacts to attract these large groups," confirms Jimmy Ragosa.
Ouriel Ohayon agrees: "When Reddit finds itself talking with former Google employees, it's bound to go well. They speak the same language!"
For Jimmy Ragosa, "this creates a virtuous circle that, combined with low transaction fees, makes Polygon an ideal launch pad for companies."
But beware, commercial power is not everything, as Owen Simonin, CEO of Meria (ex-Just Mining), which manages a Polygon validation node and offers staking to its customers, explains: "At one point they were a little too focused on marketing compared to tech, but things have changed, it has become very pleasant to work with them.
The American Ryan Wyatt is the personality who best embodies this strategy. As head of Polygon Labs - the commercial arm of the ecosystem - he previously held the position of "Head of Gaming" at... YouTube. He is one of the best "catches" of the Web3 ecosystem, along with Ian Rodgers (ex-LVMH), recruited at the end of 2020 by Ledger.
Ryan Wyatt heads a $100 million fund whose goal is to support the development of the Polygon ecosystem, which is actually drawing some criticism from competitors 😡
Polygonwatering the partner companies?
"Polygon pays for companies to use its protocol," tweeted Mert Mumtaz, the co-founder of the startup Helius, developed on the Solana blockchain, in early December.
Polygon co-founder Sandeep Nailwal defended himself by explaining that "Polygon was open to strategic agreements, but was not so stupid as to give away millions of dollars for free". Before adding: "Brands want to rely on the Ethereum ecosystem -of which Polygon is a part-, and not on half-baked layers 1", in a reference to the successive failures of Solana.
However, Polygon is not exempt from all blame in this matter. Although the protocol is not accustomed to technical problems, its network suffered an 11-hour disconnection in March 2022 due to a node problem.
In December 2021, a surprise (and controversial) update had to be implemented in a hurry to fix a critical vulnerability. "Updates are quite frequent lately," notes Arnaud Gugumus, Meria's CIO.
"They are accelerating and finally starting to develop real features on Polygon rather than relying solely on Ethereum and Tendermint standards," he says.
But how to judge its level of security?
"Security is provided by a set of 100 highly involved validators, whose governance is managed in an increasingly decentralized manner," Quentin de Beauchesne points out. "The objective of this security is to register the state of the chain in Ethereum, which then carries the final security".
Polygon faces strong competition from L2
To date, the main proposal of the Polygon ecosystem is the "Polygon PoS". It is a sidechain of Ethereum and not a true "layer 2", named after the secondary layers of Ethereum.
The difference between the two?
Polygon does not rely on Ethereum for its security and has its own consensus. "It's not a level of security equivalent to a layer 1 chain, but a compromise to take advantage of speed and fees," concedes Quentin de Beauchesne.
This is the major criticism that can be made of it, at a time when we are witnessing the emergence of "rollups" (the famous "layers 2"), presented by most experts as the future standard to ensure the scalability of Ethereum 🚀
There are two families of rollups:
The "optimistic rollups" (Arbitrum, Optimism, etc.) which are compatible with the Ethereum Virtual Machine (EVM) and on which one can very easily "copy" applications already developed on Ethereum (Aave, Curve, etc.).
Their problem is that it is sometimes necessary to wait seven days before transactions are fully validated on Ethereum. This inconvenience has led to the creation of a new generation of rollups, the "ZK rollups", which can process them almost instantly!
According to Ethereum creator Vitalik Buterin, ZK rollups will become the norm in the coming years, but the technology is not yet mature.
No solution offers complete compatibility with the Ethereum Virtual Machine (EVM). Specific solutions can be developed for specific applications(this is the case of Sorare, which has its own ZK rollup developed by the Israeli start-up StarkWare), but they are by no means "universal".
Polygon therefore has the luxury to play the clock, but it would be very risky to rest on its laurels. Hence the purchase in December 2021 of Mir Protocol for $400 million (in MATIC tokens)... This acquisition allowed the company to announce the future launch of an EVM compatible ZK rollup. This network, called "Polygon Zero", is currently in the testing phase. It should be available in 2023 ⌛️
"The Polygon team has made choices to deliver viable solutions as soon as possible," says Quentin de Beauchesne. "They continue to focus on what is most effective, such as buying back ZK solutions rather than starting from scratch or close to it."
Will that be enough? 🤔
"StarkNet and ZkSync are still ahead of the curve because they were focused on this long before the Polygon acquisitions, but that can all change in the next year," Ragosa said.
We asked Henri Liuetad, in charge of developer relations at StarkNet and a professor at the Ecole Supérieure d'Ingénieurs Léonard-de-Vinci (ESILV), what he thought: "While Polygon is moving towards an experiment that allows developers to keep the same programming language as Ethereum, we have opted for superior capabilities that will allow the emergence of use cases that are impossible elsewhere. We're betting on developers' creativity by giving them a more powerful tool."
Towards a speculative bubble of L2 tokens?
Many experts believe that Ethereum layers 2 will be the engine of the next speculative bubble, like the one observed on layers 1 in 2020-2021 (Solana, Avalanche, Terra, etc.).
At this game, the most recent projects could attract investors. The future token of the StarkNet network is one of them. Its launch is already considered a major event in 2023, as is that of ZkSync.
"Polygon will benefit less from this speculative moment and the challenge for its teams will be to value the volumes and the number of projects that are developed on it," blows an expert.
As often in Web3, it will be necessary to know how to dissociate the "noise" of the markets to concentrate on the tangible. And Polygon is certainly well placed in this battle.
(*) Quentin de Beauchesne is a minority shareholder of The Big Whale