Polygon 2.0 Fresh View

Summary

• Polygon Labs recently announced Polygon 2.0, an upgrade to the Polygon ecosystem.
• This upgrade promises to be an all-encompassing long-term strategy to make Ethereum and Polygon as free and scalable as the internet.
• In addition to modified tokenomics, investors will be given a new token, POL-USD, in a 1:1 exchange.

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Project profile

Polygon, formerly known as Matic Network, is a Layer 2 scaling solution for Ethereum. It operates as a separate network that is connected to the Ethereum blockchain to improve its scalability and lower transaction fees. Polygon aims to enhance the overall Ethereum ecosystem by providing a framework for creating various Layer 2 solutions, including sidechains and rollups, that can support decentralized applications (dApps) and smart contracts.

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Value Layer of the Internet

The third rebranding of MATIC-USD has been unveiled. What initially began as a simple proof-of-stake sidechain has evolved into a philosophical vision of how technology and finance should integrate into society.

As investors in MATIC-USD, we may not be as enthusiastic about this upgrade as we initially anticipated, as it may not provide the optimal value to token holders. However, for now, let's focus on the facts rather than investment implications, as Polygon 2.0 is still in the works. It is a valuable upgrade and represents a significant step towards the future, solidifying our belief in its potential as a long-term investment.

A comprehensive investment analysis of the upgrade will be released in the near future. Today, we will provide our initial impressions and what MATIC investors should be aware of.

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Polygon 2.0

Thesis Polygon 2.0 aspires to become the "Value Layer of the Internet." Much like how the internet democratized access to information, Polygon 2.0 aims to democratize access to the global economy through decentralized finance (DeFi), digital ownership, and innovative value exchange mechanisms. While this may sound similar to many other cryptocurrency projects, Polygon 2.0 sets itself apart with a comprehensive upgrade that encompasses protocol architecture, tokenomics, and governance. This ambitious vision will be realized through ZK-powered Layer 2 chains, connected by a novel cross-chain coordination protocol, providing unlimited scalability and unified liquidity. The end result is an ecosystem reminiscent of the internet, enabling users to interact with the network as if it were a single, interconnected chain.

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The term 'Value Layer' serves as a marketing descriptor, encompassing a concept that is expansive and somewhat challenging to define precisely. Polygon Labs provides the following description:

'What is a Value Layer? Exchanging value over the internet, much like how we send data and information over the internet. The ability to send and receive value without the need for intermediaries or third parties.'

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New Tokenomics

Polygon is evolving into a network of interconnected yet independent chains, akin to a web. The new POL-USD token will play a pivotal role in this transformation and is marketed as a next-generation 'hyperproductive token.'

POL provides users with the ability to validate multiple Polygon chains and assume various roles within the ecosystem. It grants the right to collect fees from the chains validated, although it is not the primary gas fee. Since these chains operate independently, users can choose their preferred form of gas, likely Ether.

Polygon Labs suggests that the utility of POL will largely revolve around validators, with the aim of aligning and incentivizing them to carry out valuable work. Validators are essential for running a Polygon chain, and the sole means to operate a validator is by staking POL.

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POL not only grants users the authority to collect fees on their chosen chain but also possesses intrinsic value as a security measure for these chains. In addition, a core protocol reward contributes to the overall supply inflation.

The transition from MATIC to POL is expected to be relatively straightforward, with users sending their MATIC to a designated smart contract, which will facilitate a seamless 1:1 exchange for an equivalent amount of POL.

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Regulation

When asked whether the creation of the new POL token was motivated by recent U.S. regulatory concerns, where MATIC has faced accusations of being a security, Polygon Labs emphatically denied this notion. However, it's difficult to ignore the timing and potential regulatory implications. They stated, "Ever since Matic Network expanded its vision and rebranded to Polygon, it has been publicly discussed and understood that the native token should eventually be upgraded. This specific proposal has been in development for almost a year."

The impact of evolving regulations on MATIC and POL as investment assets remains uncertain. By framing POL as primarily for validation and chain management, Polygon aims to position the token as more of a commodity rather than a security.

For those interested in further details, you can explore their blog here.

Shake-up at PolygonIn another development related to Polygon, there has been a change within the team as Ryan Wyatt, the President of Polygon Labs, has departed the company. Stepping into his role is Marc Boiron, Polygon's Chief Legal Officer. This transition, from Wyatt, who previously led YouTube Gaming at Google, to a legal expert, is a noteworthy move. We view this change as a significant loss for Polygon.

The combination of Wyatt's departure and the introduction of the new token POL adds some complexity to our previous optimism about Polygon. MATIC-USD is now officially given a HOLD rating until further analysis is conducted. Stay tuned for updates.

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Analyst's Disclosure: I/we have a beneficial long position in the shares of MATIC-USD either through stock ownership, options, or other derivatives.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor.