Investors saw the price of Matic plummet in 2022 as the market crashed, but also saw a sharp rebound from $0.37 to $1. Many investors believe that Matic will have strong future growth, most recently in 2023. But beyond the potential and expectations, Matic still has many potential risks that investors need to be aware of. Learn about Matic and its dangers in 2023 in the article below!

I. Overview

1. Understanding Polygon - Matic

Matic is considered a good helper for the Ethereum network. As a sidechain-based scaling solution for public blockchains using Plasma technology and PoS mechanism. Matic still solves the scalability problem without compromising the security or decentralization of the blockchain. In simple terms, Polygon is a Layer2 scaling solution for Ethereum. That is why Polygon has a great potential to grow with the development of Ethereum and help scale Ethereum.

In addition, Polygon's NFT market is proving its influence, and NFT kits on Polygon are gradually having more use cases, especially trusted by many developers. Recently, the "Collect Trump Card" kit appeared on the Polygon NFT market, and the price increased several times after it went online. In the near future, there will be many big brands like Starbucks.

2.Tokenomic

  • Token name: Polygon.

  • Code: MATIC.

  • Blockchain: Ethereum.

  • Token standard: ERC210.

  • Contract: 0x7d1afa7b718fb893db30a3abc0cfc608aacfebb0

  • Token type: Utility.

  • Total Supply: 10,000,000,000 MATIC.

  • Circulating Supply: 8,734,317,475 MATIC.

Currently, Matic has been almost completely distributed, with only about 1.3 billion Matic left to be distributed.

It also multiplies the selling price for investment funds or investors that backed early and Launchpad’s Seedround rounds (there were about 2 billion Matic tokens in these rounds), but this is not a problem because the investors or funds that bought early have probably sold out long time ago, so there won’t be much pressure on previous Matic holders.

II. Dangers to watch out for in 2023

1. Still not decentralized

Polygon has been touting its security and low cost when using the chain, but the trade-off is the decentralization of the chain. In the past, Polygon has always kept only 100 validators. It can be seen that of the 100 validators, most of them will include the development team or add Polygon partners, so the control still belongs to the Polygon development team, and it is not completely decentralized.

Therefore, Polygon is gradually bringing a solution to users called Polygon DAO to make Polygon more decentralized. But more decentralization means an increase in the number of validators, which will lead to a slower user experience. When the Polygon DAO is in place, this may cause price fluctuations in Matic.

2. Releasing the pressure of 1 billion Matic from the foundation and team

In 2022, the development team has unlocked approximately 400 million Matic tokens (unlocked), and the funds will add approximately 600 million Matic.

Therefore, Matic will likely face pressure from the foundation and development team to release 1 billion Matic in the near future.

3. Annual inflation

Inflation is a problem with all cryptocurrencies, but with the total supply almost completely distributed to the market, it is something investors need to be aware of.

Based on the annual APR of 4.95% for Polygon Staking, according to Matic theory, the inflation rate will increase by 4.95% every year. However, since the amount of Matic Stake on Polygon is about 2.75 billion Matic, Matic will only generate about 2.2% of the total supply each year.

In addition, Polygon's expectations are very high, so it may increase the amount of staking as the price rises in the future or maintain the price at the time of staking to wait for better profits. Therefore, it will be difficult for Polygon to control the amount of inflation.

Also take a closer look at staking. On the Polygon homepage, only those who stake on Polygon are listed. In fact, up to 3.8 billion Matic is being staked in many other places, such as Lido, Binance, etc., which will create higher profits -> higher token inflation.

4. So what must Polygon do to control inflation?

--> From that point on, the release of Matic by the team and the foundation will rationalize Matic’s inflation control. This will be a dual move for Polygon, both reducing the need for equity and funding, and making profits from unloading.

Summary

Matic has seen a significant rise in 2022, and n still appears to support Ethereum's high-security chain, build ZKevm technology, and the sustainable development of the NFT market on Polygon. However, Polygon still has no real appeal, and investors still need to pay attention to many issues:

  • In the face of inflation, aggregate supply is almost fully allocated.

  • Risks of the team and investment funds.

  • The total supply is almost fully allocated and the market cap is high, so it is difficult to push the price up.