It’s 2021 and Ethereum finds itself in a boom cycle that is so strong that the blockchain can’t handle the demand and fees are going through the roof. In 2018 demand for block space was so low that people couldn’t imagine anything like this would ever happen.
Suddenly, in the summer of 2020 it all changed and the DeFi ecosystem started its first innovation cycle increasing the demand for Ethereum transactions by a magnitude.
In 2021, on top of DeFi which never really stopped booming NFTs became a further driver of demand for the Ethereum blockchain.
The Ascent of Layer 2 Scaling Solutions
The explosion in demand for interacting with Ethereum has placed a new technology on the frontier of innovation. Layer 2 scaling solutions became the hope of the Ethereum ecosystem. Layer 1 is so crowded that everyone who is not a whale is starting to look elsewhere in order to be able to pay for the fees. We have strong reasons to believe that in the summer of 2021 layer 2 solutions will undergo a hype cycle just as DeFi did in 2020 or NFTs did in early 2021.
It happens that as of the second quarter of 2021 Polygon, formerly known as Matic Network, appears to be the most popular layer 2 solution along with Optimism. Polygon, which obtained a seed investment from Coinbase Ventures, is a project that was already started back in 2017. However, in the subsequent bear market demand for the Ethereum network was low and network fees were not an issue of concern for people. Polygon’s $MATIC token was launched on Binance Launchpad in 2019 and started to pick up steam in 2021 when adoption of layer 2 solutions took off.
Polygon is designed to operate as a sidechain of the Ethereum blockchain. The main advantage of Polygon over the Ethereum main net is the high throughput of transactions with up to 7,000 TPS (transactions per second). This stands in comparison to 15 TPS which can be processed on the Ethereum main net. In exchange for the higher throughput and the much lower fees Matic network transactions are less secure than transactions on Ethereum.
Protocols Building on Top of Layer 2
You might think that you have missed out on $MATIC and layer 2 but in fact adoption of layer 2 is just on it’s way. In the following we will analyze Quickswap which is the leading decentralized exchange on Polygon.
Polygon and Quickswap have a symbiotic relationship in terms of adoption and growth. However, while the Polygon token has gained tremendously in price throughout 2021 the price of the Quickswap token has been continuously bleeding.
Besides Quickswap that are also other well known protocols building on Polygon such as Aave which further underlines the trust that is placed on the Polygon ecosystem.
Why you should be looking at Quickswap
The main advantage of Quickswap over decentralized exchanges on layer 1 is the incredibly low transaction fees. The fees are so low that they are even more competitive than transaction fees on the Binance Smart Chains.
On top, if your objective is to provide liquidity, Quickswap has currently very generous yield farming opportunities in place to incentivize liquidity providers which translates into very juicy APYs. Especially the token pairs MATIC-QUICK and ETH-MATIC are highly incentivized for providing liquidity. However, due to the fast changing circumstances in the yield farming environment Quickswap does not provide you with official APY rates. Currently they are assumed to be around 80% for the major liquidity pairs.
How to use the Quickswap Exchange
In order to engage with the Matic Network users need to deposit funds from the Ethereum main net to the Matic Network. This can be done through a bridge. The matic network can now also be accessed from the Binance Smart Chain through a bridge that was released recently.
According to information from Quickswap’s Analytic page the liquidity provided in the protocol is oscillating around 100 million USD.
$QUICK token economics
The supply cap of Quickswap tokens is 1,000,000 $QUICK tokens. The vast majority (96.25%) of all $QUICK tokens are reserved for the community and liquidity providers. The tokens will be distributed over a period of 4 years. 90% of the token supply is scheduled to be distributed to liquidity providers.
During the first year 359,890 $QUICK tokens will be distributed to liquidity miners. The circulating supply is currently around 160,000 $QUICK tokens. This means the token supply is highly inflationary (225% p.a.).
Market observers believe that the decline in price is related to liquidity providers selling their QUICK tokens that they obtain in exchange for providing liquidity. The Quickswap team on the other hand believes that it needs to keep up the incentives for liquidity providers in order to maintain the high levels of liquidity that the exchange currently handles.
However, based on the circulating supply the market capitalization of Quickswap is only 26 million USD. All further calculations presented by Frontier Protocols are based on the fully diluted market capitalization of 1,000,000 $QUICK tokens taking into account the inflation that is scheduled to occur in the course of the next 4 years.
Furthermore, a governance mechanism will be introduced soon through which token holders can decide on how the token distribution shall be conducted. Token investors will get a chance to redesign the system in a way that is more favourable for investors.
3.25% of the token supply was reserved for project contributors and advisors. These tokens are vested gradually over a period of 546 days. The team allocation is relatively low compared to other projects in a similar field.
$QUICK Token Fair Value Analysis
Before we look into the valuation of the QUICK token ask yourself one question: What are people expected to do on Ethereum layer 2?
The answer to this question is most likely swapping tokens just as on layer 1. UNI is by far the biggest protocol token which is based on Ethereum layer 1. We have no reason to believe that the largest protocol token on layer 2 will be anything else than a DEX. Quickswap is in pole position to become this DEX for layer 2.
Not long ago Loopring was leading layer 2 adoption in the DEX niche. However, if you compare Quickswap today with Loopring in terms of transaction volume and fully diluted market cap you quickly realize that the $QUICK token at current prices is a steal. Loopring’s volume in relation to its market capitalization is extremely low while Quickswap on the other hand represents great value considering its relatively high trading volume:
|Exchange||24h Trading Volume||Token Market Cap (fully diluted)||Ratio Volume to Market Cap|
|Quickswap||27 m||151 m||18%|
|Loopring||4 m||765 m||0.5%|
|Uniswap||1,035 m||29,784 m||3.5%|
The current price of the $QUICK token is hovering around 170$. Let’s assume for a moment that QuickSwap would have the same valuation as Uniswap or Loopring measured on the ratio between trading volume and market cap. In the table below you can see the token price at which the $QUICK token would be trading at in such a scenario:
|Valuation of Quickswap based on the Market Cap of||Quickswap Fully Diluted Market Cap based on reference||$QUICK Token Price|
|Uniswap||777 m||874 $|
|Loopring||5.436 m||6,120 $|
The shift in adoption in the Ethereum ecosystem from layer 1 to layer 2 provides a strong narrative for all the protocols that are building on top of layer 2. The most popular use case on layer 2 will be decentralized exchanges and liquidity providing just as it is the case for layer 1. Quickswap is dominating the DEX space on Polygon and Polygon is dominating the layer 2 adoption of Ethereum.
Based on the early stages of Polygon adoption it can be assumed that the trading volume on Quickswap might be growing exponentially under the assumption that the adoption of Polygon continues as it did in the past couple of months.
$QUICK has extremely strong fundamentals and the prospective growth of layer 2 adoption is not yet priced in the Quickswap market cap while the $MATIC price performance already anticipated the growth of layer 2. The token carries extremely strong fundamentals while everyone is still sleeping on it.
Unlike Loopring’s $LRC token Quickswap’s $QUICK token is not yet listed on any major centralized exchange such as Binance. An exchange listing on a large centralized exchange could provide further upside for the price of $QUICK. The team is working on this and expecting a listing to occur soon.
For all the reasons stated above the editors & contributors of Frontier Protocols agree that the current valuation of $QUICK represents one of the best valued tokens you’ll be able to find in early Q2 2021.
Full Disclosure: Some of the contributors and editors of Frontier Protocols are long $QUICK.