MATIC upgrades to POL, frequent changes in senior personnel, can Polygon 2.0 continue the legend?

Will Polygon 2.0 continue the legend with MATIC upgrading to POL and frequent changes in senior personnel?

The initial supply of POL tokens is 10 billion, and it will increase by 2% annually over the next 10 years, exceeding the original limit of 10 billion for MATIC.

Written by: Grapefruit

On July 13th, Polygon officially released the whitepaper of the native token POL for Polygon 2.0. POL is not a new token, but an upgrade from the original MATIC token. The new POL token will operate within the entire Polygon ecosystem, including Polygon PoS, Polygon zkEVM, and Polygon Supernets. MATIC token holders will be able to exchange their tokens for POL at a 1:1 ratio.

MATIC’s price has seen a significant increase, with a 24-hour gain of 18%, currently priced at $0.86.

However, in the whitepaper, the initial total supply of POL is set at 10 billion, and it will increase by 2% annually over the next 10 years. This means that the total supply of POL has exceeded the 10 billion supply of MATIC tokens. This has caused dissatisfaction among MATIC holders, who believe that this dilutes the original value of MATIC.

According to CoinGecko data, the current circulating supply of MATIC is 9.319 billion, with a market cap of 8 billion USD, ranking 11th among cryptocurrencies.

What are the differences between POL tokens and the original MATIC tokens? What role does POL play in Polygon 2.0? What are the upgrades in Polygon 2.0?

Controversy over MATIC upgrading to POL with token issuance increase

POL tokens are an important part of the Polygon 2.0 roadmap and the most concerning issue for community users, as once the plan to upgrade MATIC to POL is officially implemented, it will change the narrative logic (such as utility and value) of MATIC tokens. However, the hidden issuance of POL in its whitepaper has sparked controversy.

Firstly, the blog titled “Polygon 2.0: Tokenomics” released by Polygon does not mention the specific total supply of POL tokens. It only briefly introduces the use cases of POL and the upgrade migration process.

However, in the whitepaper, the supply model of POL consists of an initial supply and continuous issuance. The initial issuance is set at 10 billion tokens, all of which will be used for the upgrade and exchange of MATIC tokens. In addition, POL will also have a constant annual issuance rate of 2%. This issuance rate will remain unchanged for at least 10 years, and any adjustments to the issuance rate after 10 years will depend on the specific circumstances. The official statement is that it will not be higher than 2% and may also be suspended.

The issuance serves two main purposes, including validator rewards and ecosystem fund development. The former allocates 1% of the annual issuance rate of POL as basic protocol rewards to validators to incentivize their participation. The latter is the ecosystem fund, which will receive 1% of the annual issuance to support the further development and growth of the Polygon ecosystem. During the initial 10 years, the issuance rate cannot be changed. After 10 years, the community can use the governance framework to decide to reduce the issuance rate in any way, but it will not exceed 1%.

This means that in the past 10 years, POL will issue an additional 200 million tokens each year, adding to the initial supply of 10 billion tokens. The total supply of POL has exceeded the maximum limit of MATIC.

This has caused dissatisfaction among MATIC holders, who believe that the issuance of POL will dilute the existing value of MATIC, making it unnecessary.

Some users also expressed the view that the Polygon team may be running out of money and wants to give themselves money through the new token POL. Currently, 93% of MATIC is already circulating in the secondary market, and the Polygon team does not have enough tokens to incentivize the growth of Polygon ZkEVM and its adoption, so they can only issue new tokens.

The official explanation for this is that the issuance and issuance rate of POL is based on the fact that the Polygon ecosystem and Web3 development require time to mature and achieve mainstream adoption. According to the adoption cycle of the Internet and computing platforms in history, the mature stage may take about 10-15 years. During this period, the ecosystem needs continuous economic support.

When the Polygon ecosystem and Web3 reach the mature stage, when the transaction fees and other incentives obtained through verifying the various chains of the Polygon ecosystem can provide sufficient returns, the community can decide to reduce or completely stop the issuance of rewards for validators. Similarly, once the ecosystem no longer needs additional economic support, the community can also decide to reduce or stop the issuance to the community treasury.

Obviously, the adoption cycle of Web3 may be slightly different or completely different from that of the Internet. If it proves that it takes longer to achieve mainstream adoption and the ecosystem still needs support after 10 years, the community can choose not to do so in advance, or adjust the issuance rate according to needs.

This seems to coincide with the user’s speculation that “The Polygon team does not have enough tokens to incentivize the growth of Polygon ZkEVM and its adoption, so they can only issue new tokens.”

The POL token will span the entire Polygon 2.0 ecosystem network

Since the announcement of the Polygon 2.0 plan, Polygon’s strategy has transitioned from a single blockchain network to an L2 multi-chain network ecosystem driven by ZK Rollup, which includes Polygon PoS, Polygon zkEVM, and various subnetworks built on Polygon Supernets, with the POL token running throughout its entire network ecosystem.

In the whitepaper, the official claims that POL is the third-generation token after BTC and ETH. Polygon explains this as follows:

BTC, although being the first-generation native token, is mainly used to pay on-chain GAS fees and miner rewards. However, for holders, it cannot be used as a productive asset (such as staking as a validation node) and does not have any governance rights.

ETH is a productive asset. The PoS mechanism of Ethereum supports ETH holders to stake it, participate in protecting network security, and thereby receive incentives. However, its supply cannot be predicted. In addition, the initial supply tokens allocated to the foundation will be exhausted, and the support for the ecosystem will also stop.

As the native token of the Cosmos Hub, ATOM is also a productive asset that can be staked to participate in protecting the Cosmos Hub and earn incentives. However, this token is only useful within the Cosmos Hub; it is not used to operate and protect other chains in the Cosmos multi-chain ecosystem. The economic support it provides cannot be sustained indefinitely, and the funds in the community treasury will also be depleted.

Polygon aims to solve the above problem by continuously supporting its ecosystem through an annual increase in the total supply of 1% to the community treasury.

In addition, Polygon introduces POL as “hyperproductive tokens.” POL token holders can stake them as validators to validate the entire Polygon 2.0 ecosystem. The role of POL holders varies on different chains. For example, on the zkEVM chain, POL holders can act as provers to generate and submit zero-knowledge proofs. On the PoS chain, POL holders can act as validators responsible for submitting transactions and generating blocks.

The Staking Layer introduced in Polygon 2.0 is where validators stake POL tokens. Users can stake POL tokens into the validator pool to participate in validating the Polygon chain and earn validator rewards, which are the annual 1% increase in POL tokens.

This is similar to the cloud platform in Web2, where users don’t need to worry about which cloud their app’s data is stored on. Validators also don’t need to worry about choosing which chain to validate in order to maximize their reward.

Therefore, POL will be the underlying asset in the Polygon ecosystem, similar to the relationship between AVAX and Avalanche and its subnets. By staking AVAX, users can become validators and validate the Avalanche mainnet and its subnets. In Polygon, validators can validate multiple chains, and each chain can provide validators with multiple roles and corresponding rewards. Validators can not only validate transactions on various networks but also generate zero-knowledge proofs to submit to the Ethereum mainnet, among others.

Regarding which token Polygon’s ecosystem will use to pay for gas fees, the official statement is that the Polygon PoS chain will use POL as the means of gas fee payment, while other chains can choose POL or issue their own native tokens.

Can Polygon 2.0 create another success?

The vision of Polygon 2.0 is to become the value layer of the internet, essentially the platform layer of Web3 (such as Cosmos and Polkadot), allowing developers to build their own blockchain networks on top of it and provide a more flexible and powerful platform for DApps. Its functionality is similar to the cloud service platforms in Web2.

Currently, Polygon 2.0 is a Layer 2 multi-chain network driven by ZK technology and introduces a set of modules, including consensus and synchronization mechanisms, fraud proofs, etc. Developers can use these modules to build their own blockchain networks with infinite scalability and unified liquidity, as well as cross-chain interaction. For users, using the entire network is just like using a single chain.

Among them, Polygon PoS will be upgraded to zkEVM Validium to make it compatible with ZK technology. At that time, zkEVM, PoS, and Supernets subnetworks will achieve information and value interoperability.

In general, Polygon 2.0 will be a collection of ZK-based L2 scaling networks.

Why does Polygon want to transition to the ZK system? This is mainly because L2 has become the main narrative logic in the cryptocurrency market. As of July 14th, the value of locked-up cryptocurrency assets on L2 networks has exceeded 10 billion US dollars.

Polygon 2.0, which likes to chase trends, also hopes to replicate the legendary narrative of EVM compatibility and create a new legendary narrative of “zkRollup L2 multi-chain interoperability protocol”. Of course, the current result is not a coincidence. This is the result of Polygon’s accumulation over the years. Polygon has positioned itself as an “integrator of L2 scaling solutions” for many years and has invested 1 billion US dollars in acquiring and investing in ZK-related technologies.

However, the L2 competition is fierce at present. Although Polygon is relatively well-known in terms of brand and incubation projects, its on-chain ecosystem share in the L2 market is still lagging behind.

According to L2Beat data, in the L2 race, Arbitrum has a TVL of 6.07 billion US dollars, Op Mainnet has locked assets worth 2.3 billion US dollars, zkSync Era has a TVL of 600 million US dollars, while Polygon zkEVM TVL is only 56.64 million US dollars.

In addition to external competition, Polygon itself has also experienced continuous turmoil, with MATIC being defined as a security by the SEC and frequent changes in senior management.

Some users even suspect that POL is a strategy to deal with SEC regulation. In addition, users are also worried that the Polygon team will launch another new token, which is a blatant challenge and is likely to attract further regulatory actions from the SEC.

Since February of this year, after Polygon Labs announced a 20% layoff, news about changes in senior management has frequently occurred. In March, co-founder Anurag Arjun resigned and acquired Polygon’s modular blockchain project Avail; Prabal Banerjee, head of Polygon research, joined the modular blockchain project Avail; just a few days ago, on July 7th, Ryan Wyatt, the former CEO of Polygon Labs, announced his resignation at the end of July and assumed an advisory position, and Marc Boiron, the Chief Legal Officer, was promoted to CEO.

Although these news did not cause much sensation in the cryptocurrency market, frequent changes in senior personnel will affect the company’s strategy and development direction. In the L2 market revolving around the Ethereum traffic war, whether Polygon 2.0 can become a hot project again as desired depends on the rapid development of its ecosystem.