Polygon, Ethereum's Second-layer Savior - Issue #34

In this newsletter, we are profiling Polygon [MATIC]. In previous newsletters, we have profiled Bitcoin, Cardano, Stablecoins, Uniswap and many others. Access all our newsletters in our archives at madcapx.substack.com.

The Short of It

Ethereum v1 needs some magic for it to carry the heavy load of all that has been created on its network. Enter Polygon to connect the dots and take some of the load off the network.


Profiling

Initially launched in 2017 as the “Matic Network,” this crypto has recently been rebranded as Polygon. It was co-founded by Jaynti Kanani, Sandeep Nailwal and Anurag Arjun, blockchain and business entrepreneurs, who saw a great need for scalability on the Ethereum network. Their second-layer solution is called by some as “Ethereum's Internet of Blockchains.”

While the main ERC20 token, MATIC, is used as a settlement currency between users who operate within the Polygon ecosystem, as well as for payment services, governance and transaction fees on sidechains.

MATIC tokens are released on a monthly basis with about half of the max supply of 10,000,000,000 already in circulation. The release schedule is broken down as follows:

  • Team tokens: 16 percent of the total supply.

  • Advisors tokens: 4 percent of the total supply.

  • Network Operations tokens: 12 percent of the total supply.

  • Foundation tokens: 21.86 percent of the total supply.

  • Ecosystem tokens: 23.33 percent of the total supply.

If the schedule is maintained, all tokens will be released by December 2022.

Polygon utilizes a secondary blockchain they call Plasma, where all the work gets done via side chains.  Plasma is anchored to the Ethereum blockchain via checkpoints. The system uses Proof-of-Stake consensus; it has been tested to 65,000 transactions per second on a single side chain. While Polygon only supports Ethereum as a base blockchain, they are looking into adding others and becoming an interoperable decentralized layer-2 blockchain platform. As well as checkpointing, Polygon utilizes other nodes as block producers, which give finality to the main chains again using checkpoints and fraud-proof mechanisms.

Validator nodes on the Plasma blockchain can stake their MATIC tokens as collateral to take part in the PoS consensus mechanism and receive MATIC tokens in return as a reward. Holders that do not have the resources to run a validator node can still delegate their MATIC to existing nodes to earn rewards.

A core component of Polygon is their SDK, a modular, flexible framework that supports building multiple types of decentralized applications. Optimistic Rollup chains, ZK Rollup chains, stand-alone chains or any other kind of infrastructure required can be created using the SDK. The SDK essentially allows Ethereum to become a full-fledged multi-chain system. Sidechains are essentially EVM-enabled chains that are ready for deployment of solidity smart contracts, making it an easy tool for Ethereum Developers to use for scaling their decentralized applications. One of the more popular ecosystem products is called “Dagger,” which is used by hundreds of dApps for real-time tracking and triggering.

Other blockchain projects, like Decentraland, have partnered with Polygon to provide developers with the development tools to more easily create content within them, as well as handling payments, NFT sales, general game states and other data. MakerDAO is also working to allow dApps that use DAI on Polygon sidechains.

While Polygon has many pluses in its favour, there are also issues. The main validator and block-producing nodes in Plasma are fairly centralized. Also, they will be in competition with Ethereum itself once core scalability features (called “Optimism”) in v2.0 are added. Other ecosystems, like Polkadot, Cosmos, and Avalanche, provide the ability to make custom blockchains within their own network rather than on Ethereum. Polygon is yet another ecosystem looking to create a huge developer community, which is proving to be difficult, as it is for all platforms at this time as there just are not enough blockchain developers out there.

If you believe in the staying power of Ethereum, you are probably well off to also be invested in important second-layer solutions like Polygon. It’s great to be running with the current leader of the pack.


Trend Lines

On the daily chart, MATIC was hovering as low as 54 sats at the beginning of 2021. 137 days later, it topped out with a 12,216% gain from those lows. An amazing run-up that happened mainly in May. Within 4 days, it lost 64% of those gains. Most high-flying crypto assets lost between 40-60% in the same time frame as MATIC did. Is the correction over for MATIC?

On this 4 hour chart by user [adeger], the prediction is for MATIC/USDT to have a fake breakout still, then one more leg down for a double bottom before MATIC goes to all-time new highs.

This next chart has MATIC/USDT on the 2-hour candlestick timeline by user [MJI786]. The price has already reached the first target since the chart was made. The user’s comments are below:

The best entry would be, when the price breaks above the falling wedge with good amount of volume. Buy the breakout from the falling wedge and take profits at the levels shown in the chart. Targets are $1.45, $1.67, $1.75, $1.89. Profits can also be taken in the resistance zone.


The Other Trend Lines

Bitcoin has been ranging between $31,000 and $40,000 for the last 24 days. Today the high so far has been $39,800, with some excitement in the Twitter space of potential to break up soon. There are several resistance areas to watch out for. First, it needs to break out above $40,000; then, there is a death cross of two moving averages in around the $43,000 area. Next, resistance at $47,000 and then the 200 day moving average at about $50,000. But we have plenty of time to reach $100,000 this year still and making $50,000 solid support for the rest of this 4-year cycle; the next halving is spring of 2024. There are also several analysts looking at $20,000 as solid support if BTC breaks below $30,000. Many long-term hodlers of Bitcoin consider this current area a great time to accumulate more.


Portfolios

This portfolio section gives you an idea of what sort of return you can get when investing in crypto assets.

BTC/USD FUND is up 263% since October 1st, 2020. Since this is a long-term holding, it is best kept in cold wallet storage or a safe custody solution. We continue to see a long-term hold position as our best stable alternative. This past week Bitcoin has been ranging between $31,000 and $39,800 USD in value.

FUND 3 started on November 16, 2020, with $1000 USD in value and invested into BTC, LTC, ETH, and ADA. The total amount of BTC value from the four coins has gained 114% since the start. The USD fund value is up 402% since the start. We will hold these positions to see how well it does against our BTC-only portfolio. LTC is down slightly -0.77% against BTC. ETH is up 130% against BTC since the start. ADA has a gain of 526% against BTC and 1358% to USD.

BLWX FUND started on February 22, 2021. They all are assets we have profiled in the last few months, and we are interested in how they will perform in 2021 against BTC. BAT has gained 62% against BTC since the start; LINK is up only slightly at 3%, WAVES is up 96%, XMR is up 58%. Overall, against BTC, the fund is up 55% and 10% against USD.

Overall, Bitcoin should be your first choice as an investment in crypto, though many digital assets can give you amazing gains if you manage your risk. As a long-term investor, we see it as our largest portfolio investment. If you are a day trader, there are many great assets to put on your watch list. Look through our previous newsletters to find some.


About

MadCapX research newsletter is written by the Madbyte Team. You can learn more about Madbyte and MadCapX on our websites. This weekly newsletter is a paid subscription and supports the team and the Madbyte projects. The regular cost is $5/month or $50/year. Get it free for 90 days; cancel anytime.

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Disclaimer: Nothing in this newsletter is intended to serve as financial advice. Therefore, do your own research and due diligence before applying any of the techniques highlighted in this post. Any risks or trades based on this newsletter are committed at your own risk.