Polygon’s native token, MATIC, recently experienced a 16.4% rally following the launch of Polygon 2.0 Goreli testnet on October 4th. However, the resistance at $0.60 proved to be stronger than anticipated, resulting in a 10.6% decline over the following six days. This decline was further exacerbated by negative news regarding the departure of a key co-founder and weak activity in Polygon’s zero-knowledge rollup (ZK-rollup) subnet.
Polygon 2.0 is a network of ZK-based layer-2 chains that are unified via a novel cross-chain coordination protocol. The technology was unveiled in June 2023 and consists of four layers: staking, execution, interoperability, and proving. Each of these layers contributes to creating an interconnected ecosystem of chains that facilitate secure, fast, and cost-effective transfers. The upgrades promised by Polygon 2.0 initially drove bullish momentum for MATIC, but the recent decline has wiped out those gains.
One possible explanation for the decline is that investors may have become overexcited about the testnet launch, leading to an adjustment in sentiment. However, other factors may have contributed to the worsening sentiment toward Polygon. For example, the project’s ZK subnet, zkEVM, has lagged behind competitors in terms of activity and deposits.
Metrics from Artemis, an on-chain data provider, reveal a significant disparity between Polygon zkEVM’s active addresses, transactions, and the numbers of competitors such as StarkNet and zkSync ERA. Similarly, when analyzing the total number of transactions and deposits in the Polygon network, the results are suboptimal compared to other layer-2 scaling solutions. Polygon’s Total Value Locked (TVL) currently stands at $756 million, less than half of Arbitrum’s TVL.
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Despite being launched earlier than most Ethereum layer-2 solutions, Polygon is now facing direct competition from Optimism and Base. The departure of Polygon’s co-founder, Jaynti Kanani, on October 4th, has also raised concerns among investors, as it comes at a crucial phase in the project’s scalability solution. Additionally, a decline in the number of active addresses using Polygon’s DApps has also impacted MATIC’s performance.
On average, the top 12 DApps on the Polygon network experienced a 17% decline in the number of active addresses over the last 30 days, particularly affecting the NFT and decentralized finance markets. Applications like Uniswap, OpenSea, and Move Stake have been particularly affected.
In light of these developments, the recent negative performance of MATIC can be attributed to reduced network activity, the departure of a co-founder during a critical upgrade phase, and stiff competition from other ZK scaling solutions. However, the Polygon team has been consistently delivering 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.
In conclusion, while MATIC initially saw a rally following the launch of Polygon 2.0, it has since experienced a decline due to various factors. The team’s ability to address these challenges and compete with other scaling solutions will be crucial for the token’s future performance. As always, investors should conduct their own research and exercise caution when making investment decisions.
