Author: Grapefruit, ChainCatcher
On July 13, Polygon officially released the white paper on the economic model of Polygon 2.0's native new token POL. POL is not a new token, but an upgrade from the original MATIC token. The new POL token will run in all Polygon ecological networks, including Polygon PoS, Polygon zkEVM and Polygon Supernets. At that time, MATIC token holders will exchange it for POL at a 1:1 ratio.
The price of MATIC coin has risen sharply, with a 24-hour increase of 18% and is currently quoted at US$0.86.
However, in the white paper, the initial total amount of POL is 10 billion, and it will be issued at a rate of 2% per year in the next 10 years, which means that the total amount of POL tokens has exceeded the total amount of 10 billion MATIC tokens. This caused dissatisfaction among MATIC holders, who believed that this move diluted the original value of MATIC.
According to Coingecko data, the total circulation of MATIC is 9.319 billion, with a current market value of US$8 billion, ranking 11th among crypto assets.
What is the difference between POL token and the original MATIC? What role does POL play in Polygon 2.0? What upgrades does Polygon 2.0 have?
MATIC upgrades POL token issuance and causes controversy
The POL token is an important part of the Polygon 2.0 roadmap and is also the most concerned issue for community users, because once the MATIC upgrade to POL is officially implemented, it will mean that the narrative logic of the MATIC token (such as utility and value) will change. However, the POL issuance volume hidden in its white paper has caused controversy.
First of all, in the official blog titled "Polygon 2.0: Tokenomics" released by Polygon, the total amount of POL tokens was not mentioned, and only the usefulness of POL and the upgrade and migration process were briefly introduced.
However, in the white paper, the supply model of POL will consist of two parts: initial supply and continued issuance. The total initial issuance is 10 billion, all of which will be used for MATIC token upgrades and redemptions. In addition, POL will be issued at a constant rate of 2% per year, and the issuance rate will remain unchanged for at least 10 years. As for the adjustment of the issuance rate after 10 years, it will depend on the specific situation. The official said that it will not be higher than 2%, and it is possible that the issuance will be suspended.
The additional issuance has two main uses, including validator rewards and ecosystem fund development. The former allocates 1% of the annual supply of POL as a basic protocol reward to validators to incentivize them to join. The latter also uses the 1% ecosystem fund issued each year to continuously support the further development and growth of the Polygon ecosystem. In the first 10 years, the issuance rate cannot be changed. After 10 years, the community can decide to reduce the issuance rate in any way through the governance framework, but it will not exceed 1%.
This means that in the past 10 years, 200 million POL will be issued each year. Combined with the initial supply of 10 billion, the total number of POL tokens has exceeded the upper limit of MATIC.
This made MATIC holders quite dissatisfied, and they believed that the additional issuance of POL would dilute the original value of MATIC. Why not choose to make MATIC tokens more valuable directly? This would be a waste of effort.
Some users also said that Polygon officials are out of money and want to give themselves money through the new token POL. Because 93% of MATIC is already circulating in the secondary market, the Polygon team does not have enough tokens to stimulate the user growth and application adoption of Polygon ZkEVM, so they can only issue new coins.
The official explanation is that the issuance volume and issuance rate of POL are set because the Polygon ecosystem and Web3 development need time to mature and achieve mainstream adoption. According to the historical adoption cycle of the Internet and computing platforms, the maturity stage may take about 10-15 years. During this period, the ecosystem needs continuous economic support.
When the Polygon ecosystem and Web 3 reach maturity, and when transaction fees and other incentives obtained by verifying the Polygon ecosystem chains can provide sufficient returns, the community can decide to reduce or completely stop issuing additional tokens for validator rewards. Similarly, once the ecosystem no longer needs additional financial support, the community can also decide to reduce or stop issuing additional tokens to the community treasury.
Obviously, the adoption cycle of Web3 may be slightly different or completely different from the history of the Internet. If it turns out that it takes longer to reach mainstream adoption and the ecosystem still needs support in 10 years, the community can choose not to intervene at that time, or they can choose to adjust the issuance rate as needed.
This seems to coincide with the user's speculation that "the Polygon team does not have enough tokens to stimulate the user growth and application adoption of Polygon ZkEVM, and can only issue new coins now."
POL tokens will run through the entire Polygon2.0 ecological network
Since the announcement of the Polygon 2.0 plan, Polygon's strategy has transformed from a single block network to a L2 multi-chain network ecosystem driven by ZK Rollup, including Polygon PoS, Polygon zkEVM, and various sub-networks built on Polygon Supernets, and the POL token will run in its entire network ecosystem.
In the white paper, the official said that POL is the third generation of tokens after BTC and ETH. Polygon explained:
Although BTC is the first generation of native tokens, it 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 verification node) and does not have any governance power.
ETH is a productive asset. Ethereum's PoS mechanism supports ETH holders to stake it, participate in protecting network security, and obtain incentives for doing so, but its supply is unpredictable. In addition, the initial supply of tokens allocated to the management foundation will be exhausted, and support for the ecosystem will stop.
ATOM, as the native token of the Cosmos Hub chain, is also a productive asset that can be staked to participate in protecting the Cosmos Hub and get incentives. However, the token is only useful within the Cosmos Hub chain; it is not used to run and protect other chains in the Cosmos multi-chain ecosystem. The economic support it promotes cannot continue indefinitely, and the funds in the community treasury will also be exhausted.
Polygon hopes to solve the above problems by issuing 1% of the total supply to the community treasury each year, which can be used to continuously support the development of its ecosystem.
In addition, Polygon also calls POL a "hyperproductive token". POL token holders can stake as validators to verify all Polygon2.0 ecological networks; on different chains, the roles of POL holders are also different. 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 to submit transactions and generate blocks.
The Staking Layer concept introduced by Polygon 2.0 is where validators stake POL tokens. Here, users stake POL tokens to enter the validator pool and participate in validating the Polygon chain to obtain validator rewards, which is 1% of POL issued each year.
This is similar to the cloud platform in Web2, where users do not need to care about which cloud the App data is stored on, and as a validator, they do not need to care about which chain to choose to verify in order to maximize the reward benefits.
From this point of view, POL will be the basic asset in the Polygon ecosystem, similar to the relationship between AVAX and Avalanche and its subnets. Users who pledge AVAX can become validators and verify the Avalanche mainnet and its subnets in the ecosystem. However, in Polygon, validators can verify multiple chains, and each chain can provide validators with multiple roles and corresponding rewards. It can not only be used to verify transactions on various networks, but also to generate zero-knowledge proofs and submit them to the Ethereum mainnet.
What token will the Polygon ecological chain use to pay for GAS fees? Officials said that the Polygon PoS chain will use POL as a means of paying for GAS fees, and other chains can choose POL or issue their own native tokens.
Can Polygon2.0 achieve greater success?
The vision of Polygon2.0 is to become the value layer of the network, which can be simply understood as the platform layer of Web3 (such as Cosmos and Polkadot), allowing developers to build their own block networks based on it, providing a more flexible and powerful platform for DApp. Its function is similar to the cloud service platform of Web2.
Currently, Polygon2.0 is an L2 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 unlimited scalability and unified liquidity, and can also interact across chains. For users, using the entire network is 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 sub-networks will realize information and value exchange.
In general, Polygon2.0 will be a collection of L2 expansion networks of the ZK system.
Why did Polygon transform into the ZK system? This is mainly because L2 has become the main narrative logic in the crypto market. As of July 14, the value of crypto assets locked on the L2 network has exceeded US$10 billion.
Polygon 2.0, which likes to chase the trend, 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, today's results are not achieved overnight. This is the result of Polygon's years of accumulation. Polygon has positioned itself as an "integrator of L2 expansion solutions" for many years and has invested $1 billion to acquire and invest in research on ZK-related technologies.
However, competition in L2 is fierce at present. Although Polygon is well-known in terms of brand and incubation projects, its on-chain ecological share in the L2 market is still lagging behind.
According to L2Beat data, in the L2 track, Arbitrum's TVL is US$6.07 billion, Op Mainnet's locked assets are worth US$2.3 billion, zkSync Era's TVL is US$600 million, and Polygon zkEVM TVL is only US$5,664.
In addition to external competition, Polygon has also been facing its own turmoil. MATIC has been defined as a security by the SEC, and there have been frequent changes in senior management.
Some users even doubt whether POL is a rights-based strategy to deal with SEC regulation. In addition, users are also worried that the Polygon team will issue a new coin. This behavior is a naked challenge and is likely to lead to further regulatory actions from the SEC.
Since Polygon Labs announced a 20% layoff in February this year, there have been frequent news about senior personnel changes. In March, co-founder Anurag Arjun resigned and acquired Polygon's modular blockchain project Avail; Polygon research director Prabal Banerjee joined the modular blockchain project Avail; just a few days ago on July 7, Polygon Labs' former CEO Ryan Wyatt announced his resignation at the end of July to serve as an advisor, and its chief legal officer Marc Boiron was promoted to CEO.
Although these news did not cause much sensation in the crypto market, frequent changes in senior personnel will affect the company's strategy and development direction. In the L2 market surrounding the Ethereum traffic war, whether Polygon2.0 can become a hot project again as expected requires the rapid development of the ecosystem.
