The new token upgrade for Polygon is approaching. Is MATIC worth the investment?

Author: 1912212.eth, Foresight News

In the early hours of August 22, news that Coinbase would list the Polygon Ecosystem Token (POL) on its coin roadmap finally brought Polygon, which had been forgotten by the market for too long, back to the market stage. MATIC rose over 6% within four hours, with the price breaking through 0.5 USDT.

POL is the migration token for Polygon (MATIC). The mainnet upgrade for Polygon is scheduled for September 4 this year, and after receiving community approval, its native token will be converted from MATIC to POL.

MATIC, once a hundredfold coin, led the way in the last bull market when competitors like Arbitrum and OP had not yet launched their mainnets. Polygon received enthusiastic support and attention from market funds, to the extent that a Dragonfly partner once expressed the sentiment of "very much looking forward to Rollups, but also worried that they might be born at the wrong time and go unnoticed."

Time has passed, and Ethereum's Layer 2 has not received significant attention. The price of MATIC has only gained a maximum of just over 1x in the past year. Can this brand upgrade save MATIC from its lackluster performance?

Automatic Upgrade of MATIC Token on Polygon Mainnet

Some older projects in the crypto industry often choose to update their brand name or token symbol to rejuvenate their image and enhance brand relevance. This time, the Polygon token upgrade mainly involves changing its token name to POL. The proposal for this token upgrade was put forward and approved in September 2023, but it has not yet been implemented, with September 4 being the official upgrade date.

Currently, MATIC on Polygon PoS does not require any action and will automatically convert to POL after the mainnet upgrade is completed. MATIC on Ethereum, Polygon zkEVM, and various exchanges will be migrated subsequently. Additionally, MATIC on Ethereum can be exchanged through interactions with some DEX aggregators like Kyber and CowSwap.

POL will migrate at a 1:1 ratio with MATIC, with an initial supply of 10 billion POL and an annual release rate of 2% (which can be adjusted based on community preferences). To incentivize validators and ensure network security, 1% of the total POL supply will be allocated as staking rewards for validators. Another 1% of the POL release will be allocated to the community treasury. This fund aims to support the development and growth of the Polygon ecosystem. The community treasury will be managed by the community and used for various initiatives, such as protocol development, research, ecosystem grants, and adoption incentives.

In the initial phase, POL will serve as the gas fee and staking token for Polygon PoS. After the upgrade is completed, according to the PIP-42 proposal, Polygon PoS validators must stake to receive rewards and transaction fees within the protocol.

Why Has the "Swiss Army Knife" Been Invisible for So Long?

Polygon's aggressive attitude and actions regarding Ethereum's scalability solutions once astonished the industry. After the last cycle, with its flagship product, the sidechain Polygon PoS, it quickly integrated open-source zk-Rollups products like Polygon zkEVM, zk-OPRollup client Polygon Miden, and Polygon SDK to build zero-knowledge proof L2 on Ethereum. Earlier this year, it also launched Agglayer, a product focused on cross-chain solutions.

Looking at its product suite, the breadth of coverage and density of layout indeed set it apart from other protocols. Over the past two years, with the emergence of Arbitrum and OP as the two main OP Rollups players, the legitimacy of Polygon PoS has been questioned, with some claiming it is merely a sidechain and not a true L2. In the ZK space, ZK Sync occupies the top position, with no one currently able to match it. In the cross-chain protocol arena, Wormhole and LayerZero have also alternated in capturing market attention. The strategy of a comprehensive product suite has led to a lack of specialization, revealing shortcomings.

Staff turnover has also had a negative impact. At the beginning of 2023, Polygon spun off its modular blockchain project Avail into an independent entity, with Polygon co-founder Anurag Arjun leaving Polygon to acquire Avail, and Polygon's research head Prabal Banerjee also leaving to join him. In October, Polygon co-founder Jaynti Kanani announced his exit from the network's daily operations to focus on new ventures. Additionally, Michael Blank, who served as COO of Polygon Labs since March 2022, also announced his departure in April 2024.

The departure of several core executives and co-founders has raised concerns in the market about its development potential not meeting expectations.

Comparison with Competitors May Be Underestimating

In June of this year, Grayscale's fund even removed the MATIC token. Is MATIC still worth buying? Let's compare the data of various L2s. For example, MATIC currently has a total market cap of 5.3 billion USD, with the token nearly fully circulated, and subsequent selling pressure is limited to an annual inflation of 2%. ARB currently has a market cap of about 2 billion USD, with an FDV of 5.7 billion USD. OP has a market cap of 1.8 billion USD, with an FDV of 6.7 billion USD. The two major competitors have significantly higher FDVs than Polygon.

According to Messari's data, by the end of Q2 this year, the average transaction fee on Polygon PoS had dropped to 0.01 USD, a decrease of 41.1% month-over-month. The daily active addresses stood at 1.2 million (up 47.6% month-over-month), with an average daily transaction volume of 4.1 million (up 3.9% month-over-month).

In terms of average daily transaction volume, Arbitrum recorded 2 million transactions, half of Polygon's; OP recorded 400,000 transactions, one-fifth of Polygon's.

In terms of stablecoin market cap, Arbitrum stands at 4 billion USD, OP at 1.2 billion USD, and Polygon at 1.8 billion USD, surpassing OP but lagging behind Arbitrum.

From the perspective of daily active addresses and average daily transaction volume, Polygon clearly holds a significant advantage, with relatively low subsequent selling pressure. Given its first-mover advantage in the last bull market, its current valuation of over 5 billion USD is only twice that of Arbitrum, which is within a reasonable range.

Moreover, with the favorable news of the token name change, as long as the overall market trend is upward, its price often fluctuates upward until the positive news is fully priced in, leading to a price drop.

Additionally, the modular public chain Avail is deeply integrated with Polygon, and the eligibility for airdrops primarily targets MATIC stakers, significantly enhancing user staking willingness. Currently, its products zkEVM and cross-chain protocol Agglayer have not yet issued airdrops, and after the market heats up, they may attract attention again due to airdrops.

On the macro market front, the Federal Reserve is likely to choose to cut interest rates, and risk assets will continue to receive capital inflows. Although L2 has been quiet for a long time, tokens supported by products and ecosystems will still attract funding and favor during sector rotations.

Conclusion

MEME is not eternal; the moment for "value investment" may be approaching. Polygon's formal token upgrade and enhanced token economics may provide an opportunity to showcase vitality again after the market warms up.