Polygon’s Focus on Building L2 Infrastructure Outweighs MATIC’s 50% Drop in ATH

After a devastating 50% correction between December 25 and January 25, Polygon (MATIC) is struggling to hold the $1.40 support. While some argue that this top-15 coin has only adjusted after a 16,200% gain in 2021, others point to the growth of competing scaling solutions.

MATIC Token/USD at FTX. Source: TradingView

Regardless, Polygon (MATIC) remains 50.8% below its all-time high with a market cap of $11 billion. Currently, the market cap of Terra (LUNA) is at $37 billion, Solana (SOL) is above $26 billion and Avalanche (AVAX) at a market cap of $19 billion.

On a positive note, Polygon raised $450 million on Feb. 7, and the funding round was supported by some of blockchain’s major venture capital funds, including Sequoia Capital.

Polygon provides scale and infrastructure support for Ethereum Virtual Machine-based (EVM) decentralized applications. In addition, it is not plagued by the high transaction costs and network congestion that affect the Ethereum network.

However, as Proof-of-Stake layer-1 networks emerged and offered low-cost smart contract capabilities, it increased competition for Ethereum network decentralized finance (DeFi), non-fungible token mining, marketplaces, crypto gaming, gambling, and social applications.

By comparison, Terra’s total value increased 340% to $12.6 billion between July and December 2021. Similarly, Avalanche’s deposits on smart contracts rose from $185 million to $11.11 billion over the same period.

Polygon’s scaling solution usage is decreasing

Polygon’s primary DApp metric started showing weakness in August 2021 after the network’s TVL fell below 4 billion MATIC.

Polygon Total value locked, MATIC. Source: DefiLlama

The chart above shows how Polygon’s DApp deposits peaked at 7.4 billion MATIC in July 2021 and then fell dramatically in the coming months. In dollar terms, the current $3.5 billion TVL is the lowest number since May 2021. These numbers represent less than 5% of total TVL (excluding Ethereum), according to DefiLlama data.

Another positive is that on March 9, Ankr, a multi-chain blockchain infrastructure toolkit, released a symbolic bridge between Ethereum and Polygon† With the first release, the aMATICb liquid staking token can be sent and stored. This allows users to earn additional reward tiers on DeFi platforms.

To confirm whether the TVL drop in Polygon is troublesome, one needs to analyze DApp usage stats. Some DApps, such as games and collectibles, do not require large deposits, so the TVL stat is irrelevant in those cases.

Polygon DApps 30 days of on-chain data. Source: DappRadar

As shown by DappRadar, on March 10, the number of Polygon network addresses interacting with decentralized applications grew 5% from the previous month. While Polygon’s TVL has been hit the hardest compared to comparable smart contract platforms, the gaming sector has seen solid network usage as measured by Crazy Defense Heroes’ 199,260 active addresses over the past 30 days.

On November 16, Polygon launched its zk-STARK powered Miden Virtual Machine, a scalable transparent knowledge argument without knowledge. Polygon has also pledged more than $1 billion to develop complex DeFi applications that require redacting sensitive information on digitized assets, reducing their size for rapid verification by blockchain participants.

The above data suggests that Polygon is holding up against competing chains, and those holders may not be too concerned about MATIC’s 50% price correction. Polygon’s ecosystem continues to thrive and the fact that it provides in-demand low-2-scale solutions across multiple industries can be considered a positive factor.

The views and opinions expressed here are solely those of the writer and do not necessarily reflect the views of Coin-Crypto. Every investment and trading move involves risks. You should do your own research when making a decision.

Leave a Comment