Polygon’s native token, MATIC, experienced a 16.4% rally with the launch of Polygon 2.0 Goreli testnet on Oct. 4. However, what followed was a 10.6% decline over the course of six days leading up to Oct. 10. The resistance at $0.60 proved to be stronger than anticipated, wiping out the gains from the early October rally. The expectations of the protocol’s upgrades fueled the bullish momentum, but it was short-lived. With negative news surrounding the departure of a key co-founder and weak activity in Polygon’s ZK-rollup subnet, MATIC faced significant challenges.
Polygon 2.0 introduced a network of ZK-based layer-2 chains unified by a novel cross-chain coordination protocol. The scaling technology, unveiled in June 2023, promised enhanced security and privacy through ZK-proofs, full compatibility with the Ethereum Virtual Machine (EVM), and instant cross-chain interactions. The ecosystem consists of four layers: staking, execution, interoperability, and proving. This interconnected chain of layers facilitates secure, fast, and cost-effective transfers, aiming to improve the overall user experience.
While the retracement of 10.6% may be seen as an adjustment to overexcitement triggered by the testnet launch, other factors contributed to worsening investor sentiment toward Polygon. One crucial aspect is the weak activity and deposits in Polygon’s ZK subnet, zkEVM, compared to its competitors. Metrics from Artemis revealed a significant disparity in active addresses and daily transactions between Polygon zkEVM and other ZK scaling solutions, such as StarkNet and zkSync ERA.
Moreover, the total value locked (TVL) in Polygon falls short compared to Arbitrum’s layer-2 scaling solution. Despite being launched earlier than many Ethereum layer-2 solutions, Polygon now faces direct competition from Optimism and Base. This increased competition further adds to the challenges the network has to tackle.
The departure of Polygon’s co-founder, Jaynti Kanani, on Oct. 4, after six years with the project, raised concerns among investors. Kanani’s exit, coinciding with a crucial completion phase of the improved multiple-layer scalability solution, added to the discomfort. It is worth noting that Polygon Labs’ CEO, Ryan Wyatt, also stepped down in July 2023. The departure of key figures within a short span of time could potentially impact the project’s stability and continuity.
Decrease in Network Activity: Implications for MATIC
The number of active addresses using Polygon’s decentralized applications (DApps) has seen a decline, particularly in the NFT and decentralized finance markets. In the last 30 days, the top 12 DApps on the Polygon network experienced a 17% decrease in active addresses. This trend is worrisome, as it significantly impacts the popularity and usage of applications like Uniswap, OpenSea, and Move Stake. A decrease in network activity can have a direct effect on the performance and value of MATIC.
Despite the recent negative performance of MATIC, there are significant challenges for Polygon’s native token. Reduced network activity, the departure of a co-founder during a critical upgrade phase, and stiff competition from other ZK scaling solutions have contributed to the correction. However, the Polygon team has consistently delivered necessary updates and improvements to the network.
Investors should closely monitor the project’s progress in addressing these challenges and capitalizing on the innovations of Polygon 2.0. The future success of MATIC relies on the ability of the team to overcome hurdles, attract users, and solidify their position in the highly competitive landscape of layer-2 solutions. With continued development and strategic measures, Polygon’s native token holds the potential to regain momentum and achieve long-term growth.
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