At the middle of May Polygon just crossed 5bn$ in Total Value Locked (TVL). This is an impressive milestone and highlights that Polygon just emerged as a serious player in the blockchain space.
It didn’t take long and the price of $MATIC caught up with the fundamentals. However, looking at the adoption of Polygon the price appreciation of $MATIC seems justified. In fact, $MATIC might be able to make its way into the top 10 cryptocurrencies by market capitalization in the course of this year.
Polygon is technically referred to as an Ethereum sidechain. Therefore, it has not obtained the same love of the Ethereum community as layer 2 scaling solutions. Transaction fees on Polygon are settled in $MATIC instead of $ETH.
A Glance at the Polygon Metrics
Adoption
Some of the most popular protocols on Ethereum have set up a shop on Polygon. Among them are Aave and SushiSwap. Their launch has added credibility to the Polygon network and boosted Total Value Locked.
However, Uniswap – the by far most important application on Ethereum – has so far decided not to launch its protocol on Polygon. Due to the decision of Uniswap to not support Polygon several teams decided to fork Uniswap and launch it on Polygon. The most popular fork that emerged was Quickswap which we recently covered on Frontier Protocols one month ago. In our article about Quickswap we correctly forecasted a price appreciation of $QUICK based on the token fundamentals. In the meantime Sushiswap launched on Polygon and Quickswap is facing serious competition.
Active Addresses
Besides the adoption of leading Ethereum protocols the number of users moving onto the Polygon network has skyrocketed. Growth of active addresses on the Polygon network has accelerated dramatically in May.
Total Value Locked
Polygon is massively subsidizing the provision of liquidity on its network in order to gain further traction in relation to other sidechain and layer 2 scaling solutions. On the one hand this helps attract liquidity to the Polygon network. On the other hand it dilutes the $MATIC token which is inflated for providing these liquidity incentives.
The liquidity incentives in combination with the launch of large Ethereum brands have helped Polygone to dramatically increase its Total Value Locked (TVL). At a TVL of 5 bn$ Polygon now counts with more than 15% of the value that is locked on the Binance Smart Chain. However, the value locked on Polygon is growing much faster than the equivalent number of the BSC.
Transaction Fees
Transaction fees are incredibly low on the Polygon network and have not substantially increased as the number of users started growing. Fees are even low when compared to the Binance Smart Chain which is a centralized copy of the Ethereum blockchain and counts with more than an order of magnitude lower fees than Ethereum itself.
Conclusion
It seems that as long as layer 2 scaling solutions on Ethereum are delayed Polygon is able to attract demand from Ethereum which can not be fulfilled due to the high gas fees on Ethereum itself. Furthermore, Polygon counts with an advantage over the Binance Smart Chain since it hosts some of the most famous and trusted DeFi brands of Ethereum itself. More and more users are experiencing the advantages of the Polygon network and as long as there is no major security vulnerability discovered we can assume that Polygon and $MATIC continue to grow substantially.
