Polygon, formerly known as Matic, is now a major newsmaker in the DeFi sector and beyond. Basically, the team from India was the first to implement the project that took care of the main sore points of Ethereum without going far away from it, and attracted high-profile and prosperous projects to its ecosystem. Almost every day the news about another project launched on Polygon appears online, after which the project can usually boast of an increased number of active users. A recent addition to the network, PolyLion, is a decentralized exchange which only launched on Polygon on May 14. According to DappRadar, it showed 66k transactions, over $6M of locked assets and 2,400 unique addresses interacting with the platform in 11 days of its existence.
Besides Polygon, you can also find a lot of announcements regarding other different L2 solutions, like Arbitrum or Optimistic. However, it is important to understand the fundamental difference between Polygon and most of the other solutions. So in this article we’ll describe in detail the architecture of this year’s hottest project and explain why it’s more suitable to compare it with, say, Polkadot, rather than the newly born Arbitrum.
Before the rebranding, Polygon was called Matic or Matic Network. It was launched in October 2017 and was supported by Binance and Coinbase. The team is quite big and international, but the core-team is located in Mumbai, India. Its co-founders, Jaynti Kanani, Sandeep Nailwal and Anurag Arjun, are experienced developers in the DeFi space.
Matic was created as a L2 scaling solution that used sidechains for the off-chain computations (layer 2), the Plasma technology, and a set of validators with the PoS consensus mechanism to ensure security (layer 1).
In the beginning of 2021, the project decided to expand their task spectrum in accordance with their new vision on Ethereum as a DeFi ecosystem, which is how Polygon was born.
Unlike Matic, Polygon does not represent just one solution, but is a universal key to all scaling solutions, both L2 and sidechains, and a framework to build Ethereum-compatible blockchains with those solutions implemented. The Polygon team speaks about itself as a Swiss Army knife of Ethereum scaling and infrastructure development. Polygon-built networks become participants of the Ethereum’s DeFi ecosystem that can be compared to Polkadot or Cosmos. Aside from providing any kind of scaling solutions, Polygon can also offer projects the tools to create such solutions by themselves, if they decide to go this path.
“With Polygon, we want to enable Ethereum to become a robust, highly-scalable multi-chain environment that acts as the backbone of the Web3 revolution,” Jaynti Kanani, co-founder of Matic Network said in February.
Polygon took the best from Ethereum and, relying on its strong shoulder, has created solutions for the main problems of Ethereum — low scalability, slow finality, and high gas fees.
Building projects with Polygon is all about choices. It allows you to choose any kind of the scaling solutions, combine them in a different way with the opportunity to switch them any moment, depending on the network’s current tasks spectrum.
The first basic choice the developers have to make is to decide whether they want their project to take maximum from the Ethereum advantages, or use only some of these features and be more independent and flexible instead. There is no right or wrong here, and the choice should only depend on the specific dApp and its purposes.
Stand-alone Chains and Secured Chains
All scaling solutions can be divided into two categories: Layer 2 (such as Plasma, ZK Rollups, Optimistic Rollups, Validum Chains) and sidechains (e.g. Matic PoS chain, xDa).
Shortly, Layer 2 solutions combine off-chain transactions handling (layer 2) and taking advantage of the Ethereum mainnet’s security (layer 1). Meanwhile, Sidechains are the blockchains running alongside the base chain (Ethereum), and interacting with it by sending or receiving assets.
There are two types of the Ethereum-compatible chain networks that Polygon offers: secured chains (aka layer 2 chains) and stand-alone chains (aka sidechains).
Secured chains (e.g. Plasma) do not possess their own validator pools, relying on the “security as a service” model — extra security insurance in exchange for extra fees. This service can be provided whether directly by Ethereum, or by a pool of professional validators. Security insurance can extend to the multiple projects, as Polkadot’s parachains share the security of the Relay Chain. Thus, secured chains can enjoy the highest level of security, but they need to sacrifice their autonomy instead.
This option is usually preferred by startups as well as by projects, for which a high security level is a primary priority — for instance a dApp that operates by holding large funds in its smart contracts.
On the other hand, Polygon supports standalone chains, having completely opposite benefits and drawbacks. They rely on their own consensus mechanisms, like PoS, DPoS or PoA (Proof of Authority). However those consensus mechanisms are not as robust as Ethereum’s security, which they can use only partially (e.g. Matic POS Chain, utilizing Ethereum for validator staking/ periodical finality checkpoints). But at the same time independence and flexibility that this kind of chains can afford far exceed those provided by secured chains, as they are not closely interconnected with the mainnet parts of the system.
This model is primarily suitable for already established projects with strong communities and great ambitions.
It is important to add here, that although any L2 solution can be supported by Polygon, only Plasma has been launched there, which is why it plays such a huge role for the ecosystem. Thus Polygon uses the more advanced version of Plasma, or More Viable Plasma.
The Plasma network has a tree-like structure: many Plasma chains, known as child chains, can be created on the top of the parent chain — the Ethereum blockchain. In fact, child chains are the small copies of Ethereum, represented in the form of smart contracts. Some of them can be unlimited, not to mention that each chain can host multiple other chains on its top. And as the system gets branched and reminds a tree, it is called a Merkle three.
Although Plasma chains and sidechains are similar (for example, both use a consensus mechanism to create blocks), they should not be confused. The essential difference between them is their position towards Ethereum: child chains use Ethereum’s security, while sidechains rely on their own.
The concept is simple: unlike sidechains, child chains have their blocks’ “roots” (data, used to prove the reliability of the block content, e.g. of a transaction) are published on the parent chain, as each child chain periodically sends the snapshots of its current state to the parent chain — the Ethereum blockchain. The specific chain, designed to submit those snapshots (rolled up transactions), is called Heimdall. Heimdall plays an important role here, as it allows to restore users’ funds using those snapshots in case anything goes wrong. This is the reason why the “secured chains” like Plasma are actually secured.
Thus, Plasma makes the Polygon space robust and attractive for the new DeFi projects that want to focus primarily on security. Besides, Plasma allows to integrate an unlimited number of dApps in its infrastructure. Currently, Polygon hosts 100+ of them. Besides, Plasma has a great potential to attract another blockchain giant to become a parent chain exactly like Ethereum, as Polygon is blockchain-agnostic.
Polygon software development kits also offer products that can bring other chains bridged to Polygon and aim at Ethereum’s multi-chain future. The latest released SDK offers tools to create the entire blockchains connected to Ethereum, such as modules with custom-made solutions for such parameters as consensus, synchronization, TxPool, JSON RPC and gRPC.
Other L2 solutions like ZK Rollups, Optimistic Rollups, Validum Chains are also coming soon. Once they are integrated, the Polygon ecosystem will become a Layer 2 aggregator.
Thus, Polygon structure can be described as a four-layer system, consisting of two optional and two mandatory layers.
The Ethereum layer
The Ethereum layer is one of the optional layers and is represented in a form of the bunch of smart-contracts on Ethereum. The layer’s functions include checkpointing, staking and providing communication between the Ethereum and Polygon chains. The projects that decide to add this layer can count on a high level of security.
The security layer
The second non-mandatory layer is the Security layer. It’s key feature is the “security as a service” function, allowing its validators to provide some extra security insurance in exchange for extra fees. This layer is represented as a blockchain that runs in parallel with Ethereum.
Polygon network’s layer
This is the main layer of the system, and, unlike the previous two, it’s obligatory and default. This layer includes Polygon-built blockchains with such functions as transactions collation, local consensus and blocks production.
The execution layer
The second mandatory layer, the Execution layer, is designed to execute the transactions of the chains from the previous layer — Polygon network’s layer. It consists of two sublayers: Execution Environment (the implementation of the Polygon’s EVM) and Execution logic (smart contracts).
Herewith, the system is quite flexible and allows to add or refuse optional layers, depending on the projects’ current scopes and problems. This can be really helpful with significant updates, task expansion and any other kind of changes.
The Polygon ecosystem is vast and very lively, as the number of applications deployed on Polygon has been growing exponentially lately. Of course, it is not very fair with respect to the ecosystem to divide its history into before Aave and after Aave, as this did not greatly affect the active and very productive work of the team.
However, the amount of locked assets on the Polygon network began to grow dramatically precisely since the appearance of the lending giant in the network, namely from the middle of April. For example, in the week before Aave appeared, Ethereum’s Swiss Army knife showed between $547.4M and $910.95M TVL, according to DeFiPulse. And after April 20, that number surged past a billion and began adding almost a billion a week. Polygon’s TVL as of May 31 is $7,202B, up $134,16M within a day. Aave’s numbers have also grown since the integration — in the first weeks of its existence on Polygon, the number of Aave users grew by 20%. One of the latest additions to Polygon was the world’s first fractional-algorithmic stablecoin Frax Finance.
Polygon is developing well in this direction thanks to the basic technical architecture of the Proof-of-Stake (PoS) fixing chain and the L2 more Viable Plasma Scaling solution (MoreVP). In February, more than 200 thousand users joined the MATIC Network. About 200 dApps were created on the network but most of them are not active. Currently, the largest DApp on Polygon is QuickSwap, permissionless decentralized exchange that has recently reached $1B in TVL.
For dApps migrating from Ethereum chain (or any EVM based), as per the developers, the underlying architecture is not that important, as long as it is compatible with EVM. And while so many enjoy the protocol, others pop the main question: will Polygon eliminate the demand for such projects as Polkadot or Cosmos?
MATIC Token and MATIC Wallet
Dapps are also very important for the growth of the MATIC token, as it is used to pay all transaction fees, taking into account the surge in demand for virtual worlds. This means that the demand for MATIC will continue to grow.
Polygon uses the MATIC token for staking, validating, and network transactions. MATIC is a token of the ERC-20 standard, so it can be stored on any Ethereum wallet, including Meta Mask. The tokens can be used as settlement fees to work the Network. Developers can integrate MATIC into their dApps in a few steps, and thus provide their users with a fast and secure user experience.
MATIC tokens are produced every month. There are currently 6,211,590,053 MATIC tokens in circulating supply and the max supply is 10,000,000,000.
The development of the Matic wallet is based on the MoreVP Polygon technology which provides ease and security in asset management for MATIC token holders. The wallet may appeal to the fact that it has a high speed, as well as is integrated with WalletConnect which is necessary to ensure the safety of users’ personal keys, in addition to the access to other Polygon functions. The wallet also interacts with various dApps, users get the opportunity to stake their MATIC tokens and hold other ERC-20 tokens with it.
Market cap: $11,61B
24h trading volume: $6,192B
Circulating supply: 6,211,590,053 out of 10,000,000,000
Since announcing its rebranding on February 9, MATIC began its first gradual and then dramatic rise. From that time on, the coin has risen from $0.07 to today’s $1.83, a 2514% increase in just under four months.
MATIC experienced a sharp upsurge against the background of the Aave integration into the Polygon network — at that time, the project’s native token jumped from $0.35 to $0.88. And in the last month, the token grew by 124.4%, having survived the fall associated with the Bitcoin price collapse and the general market decline. Compared to Bitcoin and most major altcoins, MATIC’s momentum had recovered very quickly and resumed its staggering growth. From it’s all-time high of $2.62, which was just around the time of the crash, on May 18, MATIC has lost 67% ($0.86 at the May 23′ lowest). However, the next day the coin grew up to $1.87, gaining 117% within the day, and on May 26 it recovered to $2.34, that is just 10% less than the all-time high of MATIC. By comparison, Bitcoin, after its low point during the market crash, was only able to recover by 25%, surpassing the $40,000 threshold again on May 24. And Ether still hasn’t broken through $3,000, rising by 30.87% from its low point of $1,895 on May 23.