Analyze the development potential of Polygon, a popular expansion solution: How is it different from BSC?

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Polygon maintains the ability to integrate into any Ethereum infrastructure or expand solutions, which may be Polygon’s greatest value.

Original title: “Wu said the depth: the development of Polygon and the future, how is it different from BSC, etc.”
Written by: Colin Wu

Multiple options for ETH expansion

The overall ETH expansion plan can be divided into two general directions, the first is Layer 1 expansion, and the second is Layer 2 expansion. Layer 1 expansion is a transformation of the main chain itself. Currently, the TPS of ETH 1.0 is about 15, which means that 15 transactions are processed per second, and 2.0 can be increased to 2000-4000. However, the ETH 2.0 upgrade is difficult to complete in a short period of time, and the network after the upgrade will face a problem of how to avoid centralization, because the PoS mechanism is prone to super nodes. As a result, Layer 2 expansion is rampant, becoming the primary solution for ETH network congestion.

Layer 2 is to share the pressure of the main chain by building an off-chain two-layer network. If Layer 1 is compared to a road, then Layer 2 can be understood as an overpass or an underground passage, which can help relieve congestion on the main road. There are many projects on the Layer 2 track. The fierce competition is as if there were competition for the king of the public chain in the past. We can roughly divide it into the following categories:

Analyze the development potential of Polygon, a popular expansion solution: How is it different from BSC?

The status channel, as the name suggests, opens an underground channel just like an example. The assets on the chain are transferred to the channel by means of the smart contract to lock the assets, and then the data is calculated on the channel, and finally the result is hashed and encrypted and sent back to the main chain. Similar to WeChat Alipay, software transaction bank settlement. The complete form of the state channel enables multiple parties to participate. If A and B have traded, and B and C have traded, then there is a channel between A and C. This is a very old concept with two limitations: one is that it is limited to users who join the channel, and the other is that the asset must have an owner logically. This leads to greatly restricted usage scenarios and is only applicable to the payment field (the Lightning Network is One of them, El Salvador recently used this).

The side chain can be understood as the godsons of the main chain. The most typical ones are BSC and Heco, but these two godsons have developed too fast and have taken away a large number of users on the main chain. Today, BSC and Heco are not strictly speaking side chains, but an independent chain. They have not much interaction with the ETH network. The problem with the side chain is how to ensure the two-way rivet. The so-called two-way rivet means that users can freely transfer the main chain assets to the side chain and can return it at any time, without worrying about whether it will go or not. Since BSC and Heco are not decentralized networks, there is no guarantee that the network will not have problems. Although this is unlikely, it is difficult to guarantee everything.

The sub-chain (Plasma) also transfers the data on the main chain, and then transfers the result back after the calculation is completed. Polygon’s predecessor, Matic, is this mode. The difference is that since Plasma is a decentralized network, nodes are required to confirm the transactions in this period in batches every once in a while. The confirmation result will form a hash value and then be transmitted back to the main chain. The principle is very similar to that of state channels, but Plasma can be applied to more complex calculations, not just payments. Its main problem is that the confirmation time is too long, and the return of assets requires a challenge period of about one week, which is very inefficient. In addition, the pressure on the main chain of the batch transmission is also great, which is prone to blowout congestion. Therefore, Matic has withdrawn from everyone’s attention for a long time.

Rollup is similar to Plasma. The difference is that Plasma only sends back the processing results, and users have no way to get the original data through the hash value; while Rollup packs and compresses all offline transaction data, and then publishes it to the main chain. On the main chain, you can see every transaction information by decompressing it, which is more secure (Vitalik thinks so). Typical ones are ZK Rollup and Optimistic Rollup.

The aggregation of expansion plans-Polygon

Since Plasma’s vision could not be realized, Matic changed the direction of development, and the team hopes to build it into an aggregator of many Layer 2 so that various DeFi DApps can cross-chain between different Layer 2.

Analyze the development potential of Polygon, a popular expansion solution: How is it different from BSC?

Currently, examples of the main DApps deployed on the Polygon chain are as follows:

  • The decentralized exchange Quickswap earns fees for its liquidity providers. The advantage is that the gas fee is very low. Quickswap can be regarded as a variant of Uniswap on the Polygon network. Quickswap has maintained the ability to support more than 10,000 exchange transactions, which indicates that users may take full advantage of its lower transaction fees.

  • Aave is one of the first major DeFi projects announced to be deployed to Polygon. Aave has attracted more than $5.1 billion in liquidity on Polygon, mainly providing lending services. In early April, Aave announced its deployment to Polygon. Although it has only been three months so far, the growth rate is amazing. At present, the average user who implements Aave on Polygon can execute 5 transactions per day.

  • Curve is another major DeFi project. Curve currently provides a single Polygon funding pool. Users can deposit the aTokens they receive from the Polygon version of Aave and mortgage aDAI, aUSDC or aUSDT (or directly deposit Non-aToken version of these assets) in order to earn 0.02% of fees and Matic rewards for each transaction.

  • SushiSwap naturally does not need to be introduced. The old decentralized exchanges have become even more powerful after being deployed in Polygon.

  • There are many NFT projects, because only the beta version has been deployed so far, so I won’t go into details.

Polygon project token supply situation

  • Private sales accounted for 3.80% of the total supply. Seed round, accounting for 2.09% of the total supply.

  • Early supporters accounted for 1.71% of the supply.

  • Public sale, accounting for 19% of the total supply.

  • The team accounts for 16% of the total supply.

  • Consultants account for 4% of the total supply.

  • Network operations, accounting for 12% of the total supply.

  • Foundations, accounting for 21.86% of the total supply.

  • Ecosystem, which accounts for 23.33% of the total supply.

From the perspective of token distribution, network operations and system ecological construction account for a large proportion, and the project pays more attention to the construction of the ecosystem.

Reasons for Polygon’s strong performance

In May, Polygon became the first Layer 2 project with a circulating market value of more than ten billion U.S. dollars in crypto assets, and quickly stabilized after the 519 crash. It was the first to rebound in the market panic, and it was once close to the previous high. Today, Matic has stabilized its market capitalization in the top 20 cryptocurrency market capitalization rankings.

The vigorous development of fundamentals is undoubtedly the main reason for its surge. The first to bear the brunt is its rapidly expanding DeFi territory. According to the Planet Daily report, in recent months, Polygon’s network ecosystem has expanded at an alarming rate. In addition to the several DApps mentioned above, well-known projects in the Ethereum ecosystem such as 1inch, Opensea, and Super Rare have deployed themselves. Polygon version of, and has accumulated considerable lock-up funds.

The reasons can be roughly classified into three points:

According to the analysis of the Planet Daily, the first point is that Polygon itself has previously launched a $100 million fund to promote the application of DeFi on their network. The projects mentioned above are all beneficiaries of this fund, and users are contributing to these FeFi funds. While the product provides liquidity, it can also be rewarded with Matic tokens from Polygon.

But the most critical is the second reason, that is, as the native Layer 2 of Ethereum, Polygon’s good EVM compatibility allows DeFi projects built on the first layer of Ethereum to easily migrate to the network with simple adjustments. Not only that, Polygon can also provide much higher performance than the first layer and almost negligible transaction costs on the chain. According to the previous analysis of researcher Mira Christanto, the transaction volume of the Polygon network has reached three times that of the first layer of Ethereum. But the total gas fee of the whole network is only 0.01% of the former.

In fact, if Polygon is defined as a side chain (Uri Kolodny thinks Polygon is more like a side chain than Layer 2), then Matic’s skyrocketing is no longer unexpected. With reference to the Binance Smart Chain, the congestion of the Ethereum network has also given it an opportunity to shine. The transaction volume on the BSC chain has increased from less than 1 million transactions before to 11 million during the peak period.

Analyze the development potential of Polygon, a popular expansion solution: How is it different from BSC? The picture above is from Nansen.ai

By comparing the trading volume of Polygon and BSC, it is obvious that although Polygon has grown rapidly, its growth rate is relatively slow compared to BSC. In terms of time, we can find that Polygon’s trading volume skyrocketed after the launch of a $100 million fund in April. So let’s assume that if this fund is launched at the beginning of the year, perhaps Polygon’s trading volume will exceed 10 million. Not only that, after the 519 Night of Fright, the BSC transaction volume plummeted and has now fallen below 5 million transactions, while Polygon’s transaction volume has always remained at around 7 million transactions. It can be seen that most of the DeFi projects on the chain have real value rather than just Hype hotspot. This can also refute Uri Kolodny’s point of view from the side (he believes that Polygon is a side chain, so the security needs to be considered). Facts have proved that even if Polygon is regarded as a side chain, its good EVM compatibility prevents it from experiencing large-scale thunderstorms. After all, projects based on Polygon have all been deployed on Ethereum before, so unlike BSC where there have been many forks and blanket attacks, Polygon has a smaller DeFi application ecosystem.

The development of Polygon after ETH 2.0

In fact, not only Polygon, but the entire Layer 2 expansion plan has long-term significance. ETH’s positioning is not a payment platform, but a new type of Internet, so its TPS needs to reach 10,000 or even 100,000 to meet user needs. However, the expansion of ETH is limited. In terms of computer principle, expansion is nothing more than vertical expansion and horizontal expansion. Finally, the algorithm is optimized. Therefore, upgrading ETH to 2.0 will not achieve the speed of transactions and confirmations in seconds, and even less than 7000+ TPS. Therefore, Layer 2 is still a very important part of the ETH ecology, and Polygon’s advantages are still obvious, and its role as an aggregator of Layer 2 is beyond doubt.

Not only that, but ETH 2.0 has a more important potential problem, that is, how to maintain decentralization: 2.0 staking mining may have highly specialized nodes. Therefore, many two-layer networks are needed to disperse the nodes, so that the impossible triangle can be taken into account relatively.

Although ETH 2.0 will weaken the role of Layer 2 to a certain extent, the public chain is not only ETH. We know that Polkadot is committed to creating multi-chain functions so that many public chains can cross each other. This is the biggest difference between Vitalik and Gavin Wood. As for all public chains, Layer 2 expansion is required (I don’t mention it now because they haven’t even done Layer 1), so as long as Layer 2 has a chance, Polygon has a chance. If Polygon can implement cross-chain functions on the basis of ETH, then its value can be benchmarked against Polkadot. As an integral part of the ETH ecosystem, the benefit of its construction is that it can benefit from the network effects of ETH, while at the same time getting rewards from the inherent security of the protocol. Polygon maintains the ability to integrate into any ETH (the world’s largest multi-chain system) infrastructure or expand the solution, which may be Polygon’s greatest value.

Disclaimer: As a blockchain information platform, the articles published on this site only represent the author’s personal views, and have nothing to do with the position of ChainNews. The information, opinions, etc. in the article are for reference only, and are not intended as or regarded as actual investment advice.

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