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What is Polygon? The Beginner’s Guide

Polygon, formerly known as Matic Network, has become the most popular Ethereum scaling solution. This article is a Polygon beginner’s guide and review. We’ll guide you through Polygon’s history and technology. What problem is Polygon trying to solve and how?

Polygon is a versatile platform

First, let’s place Polygon into the correct category. We like to divide cryptocurrencies into three main categories: currencies, platforms, and tokens.

Bitcoin is the best-known currency. Other popular currencies include Litecoin, Bitcoin Cash, and Monero. They are designed to function as digital money and a medium of exchange. They don’t have any other significant use cases besides transferring and storing value.

Ethereum is the king of platforms. Platforms are not just currencies – they are operating systems for smart contracts. You can think of platforms like iOS or Android. Platforms give a framework for software developers to build decentralized apps (Dapps). Other popular platforms include Cardano and Binance Smart Chain.

Tokens are always issued on a platform, which means they don’t have their own blockchain. Tokens are usually either utility tokens or governance tokens. They have a use case inside a specific app. Chainlink, Uniswap, and Aave are popular tokens.

Polygon should be placed into the platform category. However, it’s not a typical platform, since Polygon’s Pos Chain is tightly linked to Ethereum. It’s also known as Ethereum’s sidechain. Polygon is also competing with Cosmos and Polkadot in the interoperability sub-category.

The native token of Polygon is MATIC. This is because Polygon was originally called Matic Network. The MATIC token has the same use case as other platform tokens do; it is used to pay transactions in the Polygon network. MATIC is also staked by the network validators.

The history of Polygon

The history of Polygon goes back to the year 2017. This is when a son of an Indian diamond mine worker, Jaynti Kanani, was still working for He was following closely the crypto market too and especially the difficulties of Ethereum.

Kanani wanted to solve Ethereum’s scaling issues, and he wasn’t the only one. Many scaling projects launched in 2017 with similar goals. Next, Jaynti Kanani contacted Sandeep Nailwaliin, who he knew already from the crypto scene. Anurag Arjun was working in the same office as him. Kanani pitched them the idea of the Matic Network. Mihalio Bjelic also joined the core team later.

Below is a picture of the core members from Polygon’s website.

polygon core team

The project started officially in 2018. You can read more about the early stages of this interview.

This is one of the few crypto projects originating from India. It gave the Matic Network team some extra challenges due to the regulatory uncertainties in the country. India has banned and unbanned cryptocurrencies several times in the past five years.

Since India is quite an unknown territory in the crypto industry, Matic Network didn’t have access to big VC firms either. The early stages of the project were challenging. There wasn’t much funding available.

Things started to change in 2019. Matic Network received funding from Coinbase Ventures, which is one of the best-known VC firms. The MainNet Alpha version was also released with new partnerships. You can read more from this recap.

The key event of 2019 was the Initial Exchange Offering (IEO). It was hosted on the Binance Launchpad in April. Matic Network sold 19% of issued tokens (1.9 billion of 10 billion) for investors. The MATIC token ended up being the best-performing Binance Launchpad IEO of 2019.

If you want to learn about the historical developments of the MATIC token, check out this article: the current & historical price of MATIC.

In 2020, the MainNet was finally launched. This was done in phases during the summer.

Matic Network was building a Proof of Stake sidechain for Ethereum using the Plasma technology. This sidechain could scale up to thousands of transactions per second without giving up the security of the Ethereum blockchain.

The first major DeFi boom took place in the summer of 2020. This clogged the Ethereum blockchain again. Matic Network was still hidden from the mainstream audience, even if it had the perfect solution for the problem. The price of MATIC went nowhere during the year 2020.

The DeFi market exploded again in early 2021. This is when the MATIC token caught finally the attention of investors. The price 10-folded quickly from around $0.02 to $0.20. More and more partnerships were announced.

In February 2021, Matic Network was re-branded to Polygon.

This is when the project announced its new goals. Polygon wants to be “the internet of blockchains” and has a focus on interoperability. This is exactly what projects like Polkadot and Cosmos are also working with.

Still, Polygon is strongly linked with Ethereum. Many popular Ethereum influencers also joined the advisory board. The names like Hudson Jameson, Ryan Sean Adams, and Anthony Sassano are well-known to all Ethereum enthusiasts.

Polygon updates in 2021 & 2022

Let’s look at the most significant events of recent years. First, we can highlight the numerous Ethereum scaling solutions Polygon has launched. The image below is from Polygon’s website.

polygon scaling

Polygon Hermez uses Zero-Knowledge proof technology and delivers more than 2000 TPS capacity. Polygon Nightfall is a solution for institutions. It is developed in partnership with Ernst & Young.

Polygon Edge, on the other hand, is a framework for application developers, making it easy to create custom blockchains. Edge is a competitor to the Cosmos SDK as well as to Polkadot’s Substrate.

Polygon has also had its own technical challenges. In December 2021, the project announced that it had patched a vulnerability that would have compromised almost all MATIC tokens in circulation. The bug was quietly fixed for security reasons.

In January 2022, an important update was made when Polygon implemented the EIP-1559 update to the PoS blockchain. The EIP-1559 update burns MATIC tokens on every transaction. It was originally introduced by Ethereum in the summer of 2021.

In February, Polygon completed a funding round of $450 million. It included a list of some of the best-known VC firms in the industry. This is one of the largest post-ICO funding rounds in the crypto industry.

In May 2022, social media giant Meta announced that it had chosen Polygon as the technical solution for Instagram’s upcoming NFT integration. Facebook’s NFT integration is also in the works. In addition to Polygon, competing blockchains Ethereum, Solana, and Flow are involved.

Aave has also chosen Polygon as its partner for the Lens protocol. It provides tools for building decentralized social apps. At the end of June, there was a short MATIC token rally in conjunction with the Polygon ID launch.

This technology has almost limitless potential, especially in the DAO world. It brings secure and encrypted authentication to the Polygon platform and EVM-compliant blockchains. This enables 1 person = 1 vote voting in DAO communities. Currently, the model is 1 token = 1 vote, as token owners cannot be identified.

In July 2022, Polygon reached a major milestone with the release of the first zkEVM platform. This is effectively a blockchain based on ZK-Rollups technology that also supports smart contracts.


Polygon PoS Chain

As mentioned in the history section, Polygon started out as the Matic Network. It was originally meant to be just a sidechain for Ethereum. Although Polygon has expanded considerably, this sidechain is still Polygon’s best-known and most used solution. It is known as the Polygon Pos Chain.

Layer 2 solutions such as Arbitrum and Optimism have also emerged since 2021. They are also scaling Ethereum, but with a slightly different technical implementation. As we mentioned in the updates section, Polygon also has a number of different scaling solutions of its own.

Polygon PoS Chain is a blockchain using the Proof of Stake consensus. It can handle around 7000 transactions per second. This is possible because there are only 7-10 validators creating blocks in Polygon’s architecture. They are located on a Bor layer. This is basically the same as the Polygon Pos Chain.

polygon architecture

The Heimdall layer contains 100 validators that are staking MATIC tokens the most. The Bor layer’s block creators are randomly selected from here. Heimdall layer validators also take a snapshot of the Polygon Pos Chain (Bor layer) and send it to the Ethereum blockchain. This allows the Polygon Pos Chain to leverage Ethereum’s security.

Ethereum is also linked to Polygon in other ways. As the graphic above shows, staking contracts are located on the Ethereum blockchain. Polygon’s validators, therefore, stake MATIC tokens on Ethereum.

There is no minimum threshold for the number of tokens in staking. However, a validator must stake enough tokens to reach the top 100. Otherwise, it will not be able to access the Heimdall layer and thus the Bor layer to issue blocks.

A retail investor can also delegate their MATIC tokens to be staked, which is also possible with other PoS solutions. Polygon staking currently yields around 7 percent.

The MATIC token is used in the Polygon Pos Chain to pay transaction fees. They are fractions of a penny, which means they are almost free. The MATIC token will also be used in other scaling solutions built by Polygon in the future.

Polygon and DeFi

Polygon Pos Chain took off in a big way during the spring of 2021. At that time, we also saw a wider DeFi and NFT boom. Ethereum had dominated these markets with over 95 % market share until February 2021. Now, Ethereum’s slice is almost 40 percentage points lower. Polygon is one of the largest DeFi platforms on the market after Ethereum.

The most important infrastructure projects in the crypto world can also be found on Polygon. These are The Graph and the oracle giant Chainlink.

The popular website compares the development of the DeFi sector across different smart contract platforms. It currently lists 283 different DeFi apps on Polygon. This number is the third largest after Ethereum and BNB Chain. The figure below shows the top 8 ranking at the time of writing this article (8/2022).

defi ranking

Polygon has reached its position as one of the leading DeFi platforms. Its market share has hovered between 2.5% and 3.0% for a year. Polygon’s success peaked in early 2021 when it was one of the few popular DeFi platforms with BNB Chain and Ethereum. The rise of Solana, Avalanche, Tron, and Ethereum’s L2 solutions has tightened the market a lot.

The future of Polygon

Although Polygon has broadened its scope and rebranded from Matic Network, its native token still has the ticker MATIC. This might confuse novice investors.

The MATIC token has clear use cases, which have already been discussed earlier in this article. First and foremost, it is the native token of the Pos Chain, which means MATIC is used to pay transaction fees on the network. As it is a Proof of Stake blockchain, the MATIC token is also staked by the network’s validators. Staking locks huge amounts of tokens out of the market and creates more demand.

The MATIC token is also used for governance purposes. In the future, its holders will be able to vote on Polygon’s improvement proposals.

What is the potential of Polygon as an investment? The Coin Bureau video below is worth checking out as it provides a good overview of the topic.

Polygon has come a long way in the last couple of years – no one can deny that. It has become one of the most popular DeFi platforms on the market and has also attracted the interest of institutions. The collaboration with Meta is also a big deal. The MATIC token has reflected this development; its price is almost 50x higher than it was just two years ago.

A bit more than 80% of all MATIC tokens are in circulation. The rest will be on the market within the next 1-2 years. This may continue to put pressure on sales, but fortunately, the majority of coins are already in circulation.

Polygon is likely to get a boost from Ethereum’s upcoming The Merge update. It is also worth noting that the need for scaling solutions will not diminish after The Merge. Ethereum’s transaction capacity will not increase at all after this update.

The so-called Ethereum 2.0 is expected to be ready by the end of 2023. By then, it will have an estimated 100 times more transaction capacity than today. There will be a need for Polygon and Layer 2 solutions after that. If Ethereum and the whole crypto industry continue to grow, even 100 times the capacity will not be enough to handle all traffic.

What are the potential concerns? The Ethereum scaling is one of them. At the moment, it seems that Layer 2 solutions such as Arbitrum and Optimism are growing rapidly. Their DeFi liquidity (TVL) is increasing while Polygon’s stats aren’t that good. Polygon Pos Chain’s TVL is about 85% lower than at its peak in summer 2021.

The fixed cap on MATIC tokens is also a concern for some. When the maximum amount (10 billion) is reached in the next few years, where will the rewards for the network validators come from? It is likely that the Polygon Foundation, which is driving the project, will have to pay for this if no annual inflation is introduced for the token.

Overall, it seems that Polygon’s popularity peaked in the spring of 2021 when there was little competition in the DeFi sector. Ethereum’s Layer 2 solutions were also still at the test stage. Now, competition around Polygon has really intensified.

If you want to learn how to buy & store Polygon (MATIC) safely, check out this article: how to buy Polygon. It gives you step-by-step instructions on purchasing Polygon.