Polygon, also known as MATIC Network, is a layer-2 scale solution, which was introduced in 2019 to address several limitations of the Ethereum blockchains. These include transaction speed, throughput and gas fees.
It was originally designed as a scaling solution, but it rapidly evolved into a multi-purpose ecosystem that’s been receiving a lot of attention. MATIC, the native token, made its debut on Binance Launchpad during the Initial Exchange Offerings, (IEO), boom.
But first thing’s first, let’s see what layer-2 solutions are if we want to have a better knowledge of Polygon.
What is Layer-2 and why do we need them?
A layer-2 solution is a blockchain that runs parallel to a mainnet — in Polygon’s case, Ethereum — but processes transactions outside of the mainnet, resulting in an increased throughput (transaction speed) and lower gas fees.
Layer-2s, in other words, create a communication channel between two blockchains and transmit the information package (the transaction details) from one blockchain to the other to execute the transaction at a fraction of the cost and at a faster speed. This is all without any compromise to the Ethereum mainnet.
We all know that Ethereum is the best ecosystem for software developers who want to launch their decentralized apps (dApps) because of its secure infrastructure and innovative tools.
However, the high demand for dApps and the subsequent supply clogged the network, and its throughput has significantly downgraded — it’s not uncommon to see gas fees rising up to two or three digits in USD equivalent, which can be quite expensive depending on how much you interact with the network, leaving the Ethereum blockchain only for the ‘big players.’ You can use Etherscan’s gas tracker to check the current gas fees.
This is why Layer 2 solutions have become essential to the DeFi ecosystem as they enhance Ethereum’s scalability and throughput while still benefiting from its security properties.
How does Polygon work?
Polygon functions in the same way as other Proof of Stake (PoS), including governance, network nodes and staking.
Evidence of Stake Consensus
The Proof of Stake consensus is used by the platform. This relies on a set of validators to validate and verify transaction blocks on the network. It replaces the traditional Proof of Work (PoW), that requires a lot of processing power to create new blocks.
The major difference lies in the fact that, instead of doing the work (computing work with PoW algorithms), in PoS token holders validate and verify transactions.
The PoS ecosystem of Polygon works by rewarding users with MATIC, the protocol’s native token. One of these options will allow you to earn MATIC.
Become a validatorTo validate transactions on the Blockchain, you must commit to the network and run a full node. As a validator of nodes, you will be paid a cut of the fees and your newly created MATIC. Your MATIC rewards may be reduced if you are malicious, make mistakes, or have slow internet access.
Become a delegatorThis is a type o public node. As a delegator, you receive other people’s MATIC and use it to help the network conduct PoS validation. The larger the delegated stake, the higher the delegator’s voting power. While this is much easier than being an node validator it does have its challenges.
If you want to transfer funds from the Ethereum network to Polygon’s, you need to use the PoS bridge, which is a set of smart contracts that help to conduct assets from the Ethereum mainnet to the Polygon sidechain.
The PoS Bridge is used to transfer assets between Ethereum and Polygon. These funds can then be used to interact with the Polygon ecosystem’s apps and blockchains. You’ll have to pay a transaction fee in ETH, of course, which can be expensive, but once you’re in the Polygon network, transactions are very cheap — less than a dollar.
The Polygon Protocol is a way to connect all Polygon-based cryptos with one another and the Ethereum network. It also allows chains and other entities to tap into Ethereum to obtain its security model.
Polygon’s Software Development Kit (SDK)
Polygon’s Polygon Software Development Kit (SDK) was announced in May 2021. This collection of plug-and play software tools allows developers to create fully customizable blockchains or DeFi apps.
Although Ethereum is a multi-chain system with all the necessary features, it is not yet fully functional. Developers find it difficult to work on projects due to the limitations and lack of structure in the Ethereum ecosystem.
Polygon aims to give the ecosystem a boost with Polygon SDK, based on three major concepts: Ethereum-compatibility, modularity, and extensibility, making it a flexible framework for developers keen to work on Ethereum scaling and infrastructure solutions.
The Polygon SDK can be divided into two versions. The first version supports Ethereum compatible stand-alone chains that are sovereign blockchains and in charge of security and modules. These chains can use Polygon bridge to communicate directly with Ethereum, such as transferring assets or sending arbitrary message. They also retain their independence.
On the second version, we’ll see support for other types of chains, such as Layer 2, with their own set of modules and tools to further empower developers.
Utility: What Can You Do with Polygon?
Polygon allows you almost all the same things you can do on Ethereum but with a lower throughput and high gas fees.
Polygon has evolved from a simple scaling solution into a complex ecosystem that allows developers and users to use a variety of uses cases. Developers and users can launch Ethereum-compatible blockchains and mint non-fungible tokens. They can also become node validators and delegators and stake MATIC.
Many successful Polygon projects have been developed, including yield-generating protocols such as Curve Finance or Aave, decentralized exchanges like SushiSwap and the most well-known decentralized NFT (Non Fungible Tokens) marketplace, OpenSea.
These protocols can be used with Polygon instead of Ethereum. For example, OpenSea allows you to choose Polygon instead of Ethereum as the main network and use it every time you trade NFTs — you just need to have a Polygon-compatible wallet like MetaMask or Coinbase Wallet and connect it to OpenSea.
It’s also worth noting, though, that not all protocols that are built on Ethereum have their Polygon iterations, and to this extent, there are certain limitations.
The MATIC Token
The MATIC token, an ERC-20 token, powers the entire Polygon ecosystem. It’s used to pay for gas fees, for staking, and for governance. As per CoinMarketCap, there’s a current circulating supply of 7.48 billion MATIC tokens, with a max supply of 10 billion.
After being rebranded under Polygon, and adding new features to the ecosystem for developers and users, the MATIC token saw an explosive rise in its price due to its increased use case. At the time of writing this, in February 2022, it’s the 16th largest cryptocurrency by means of total market capitalization.
Here is the MATIC token supply distribution:
- Advisors: 4%
- Private Sale: 4%
- Network Operations: 12%
- Team: 16%
- Launchpad Sale: 19%
- Ecosystem: 23%
- Foundation: 22%
Meet the Polygon Team
Polygon was founded by four software developers with strong backgrounds in software development.
Popular DApps Using Polygon
- SushiSwap: A decentralized Ethereum exchange (DEX), which acts as an Automated Market Maker.
- Curve Finance An exchange liquidity pool for Ethereum that allows seamless stablecoin trading with low risk.
- 1inch: A DEX-aggregator that acts like a liquidity bridge among several DeFi protocol, providing users the best liquidity on Ethereum (Binance Smart Chain (BSC), Polygon) and other DeFi platforms.
- Aave: A yield-aggregating protocol that allows users of crypto to borrow it to use it to secure flash loans.
- QuickSwap: A decentralized, on-demand exchange that uses the Polygon network. It offers lightning fast transactions at a very low price.
Polygon is one the most exciting DeFi projects, and has a promising future in the DeFi community with regards to scalability as well as blockchain interoperability.
We could soon see huge inflows of projects flourishing on the Polygon ecosystem, thanks to its rich set of tools for developers, innovative mechanism and modules, support for the Ethereum Virtual Machine, and complete support for the EVM.