This article explains the major impending upgrade for Ethereum known as the merge. This much anticipated upgrade is one of the largest, and most complex upgrades in the history of technology.
Polygon Recap
For an earlier read on Polygon and the Matic token check out Justin’s article [here]. Polygon is an Ethereum compatible network that aims to help improve Ethereum by focusing on speed and cost efficiency. Polygon is user-friendly, easily integrates with Metamask, and easily allows users to Bridge Ethereum funds to the network. Currently staking services are directly on the Ethereum network which provides the most security.
Once funds are bridged to the current side-chain Polygon provides, users will immediately experience far cheaper fees and much faster speeds. Polygon is not however just a sidechain. Polygon conducts research and development that strives to attack the scalability problem from multiple angles.
The Polygon developers are able to benefit from open-sourced code. Sidechains suffer from an inherent security risk since they do not use the base layer of Ethereum directly. Polygon aims to solve this by implementing an optimistic rollup first (Nightfall), and later, zk-rollups of varying complexity/structures. For more information on rollups and scaling check our MoC’s article [scaling].
Polygon has some of the best partnerships in crypto. Polygon NFTs are already integrated into Instagram. The payments platform stripe has launched global payments utilizing the blockchain. Polygon has partnerships that include Adidas, Prada, Starbucks, Draft Kings, Burger King, Disney, Reddit, the NFL and more. Polygon also strives to dive deep into blockchain gaming which is still an emerging market. You get the point, Polygon provides a potentially enormous opportunity for anyone looking to get into crypto, but what about the MATIC token? [1]
Allocations/Releases and Fund Raises
To be clear, Coinbusters has been bullish on Polygon for over 2 years. To date we have mostly used the MATIC token to swing trade with success. With the current recession and extended bear market, dollar-cost-averaging fundamentally strong projects presents a massive opportunity. While not financial advice, our research has guided us to the belief that MATIC will continue to provide tremendous upside on the long-term timeframe.
Check out the allocation graphic above. Less than 25% of MATIC allocations were reserved for the team, advisors, and private round investors. The team is the least likely to sell early since they are the most vested in the project’s success. The rest of the allocations are reserved for further development and expansion of the network. Approximately 75% of the total supply of MATIC is already released, many private investors have likely sold a large portion of their holdings. This will reduce price suppression when the market decides to recover.
Polygon has been tremendously successful with raising funds post ICO. This is not a commonly discussed metric for future outlook, yet it is imperative to price action. When networks are able to raise funds without having to immediately sell massive amounts of tokens on the market, it assists with price stability since the funds provide cash for future endeavors, and expansion.
In February of this year, Polygon raised 450 million dollars from Sequoia Capital, Softbank, and Tiger Global among others [2]. With fund raises like this, Polygon was able to purchase two Zk-Rollup startups to assist in expansion of the layer-2 scaling solutions for Ethereum. Do remember, while Polygon foundation success is important, investors are investing in the MATIC token and NOT the network.
MATIC Analysis
So MATIC has a bullish initial allocation and release schedule, and the total supply has nearly 75% released, but what does the MATIC token do? MATIC is used for network fees much like Ethereum. MATIC is also used to validate the Network and keep transactions secure. Validators are able to run nodes, and delegators, like you and I (if you chose to invest) can stake their tokens for a reward over-time. The rewards are in more MATIC tokens, which can be compounded much like dividends for stocks. Most of the remaining tokens to be released will be future staking rewards.
MATIC has maintained a fairly low circulating supply increase due to the staking incentives. The MATIC token also trends with Ethereum price in a fairly stable manner. This presents an opportunity for speculators to purchase MATIC instead of ETH (or in combination) for a potentially higher ROI over time albeit more volatility. Currently, 35% of MATIC tokens are staked, as this number increases, less MATIC is available for trade creating a potentially supply shock in the future. Since staking rewards are of limited time value, those who stake early will receive the most tokens over-time. In the future, 4-5 years out, these rewards will disappear.
As the Polygon network experiences surges in volume and usage, the MATIC token will increase in demand. With the recent Starbucks partnership, NFTs will be provided to Starbucks loyalty members. NFTs will have individual rarity and features, and will be tradeable between Loyalty Club members [3]. This is just one driver for the Network, with sports betting, gaming, general partnerships increasing engagement, the MATIC token will experience a constant demand. The chart above shows the number of active contributors and compares it to 2 other scaling solutions. There is tremendous growth over the past year.
Sine MATIC has the Ethereum burning mechanism implemented (EIP-1559), and the token has a capped supply, MATIC will eventually become deflationary, increasing the scarcity of the asset. Unlike Ethereum which technically has an unlimited supply, MATIC will be of large demand, but offer an incredibly limited supply over the next few years. These combined metrics make MATIC a yes in terms of analysis for Coinbusters. We give MATIC an 8/10 hampered by inflation and lack or more utility to the token itself. For transparency, we plan on dollar-cost-averaging both Ethereum and MATIC through this entire bear market. Please remember to do your own research, this is not financial advice, stay safe out there.
