This newsletter is an effort to document my own thoughts about various crypto projects in a structured manner. I will benchmark and score each project on a limited number of factors which I believe are the most important ones and try to come up with an answer whether it is worth buying and holding the particular project for a long period of time primarily for me personally.
Note that this is not a “hot tips” style newsletter and is more of a high conviction play that should stand the test of time. Before and if you choose to act on some of these make sure to do your own research about whether it is suitable for your circumstances.
I grade projects on 4 parameters
Visibility
Security
Utility
Tokenomics
I intentionally avoid other factors such as team etc and will elaborate why over time. If you have not seen my last post “Should I buy BNB?”, I will highly recommend checking it out as that will give you additional context about today's question.
Should I buy MATIC/Polygon?
Visibility
MATIC rebranded to Polygon is not a well known project on the street. However among practitioners of Defi or Decentralized Finance it is very well known and widely used.
In fact it was one of the early winners from Ethereum's gas problems. It positioned itself as the decentralized alternative to BSC, while offering faster and even cheaper transactions than BSC itself.
4/10
Utility
Ethereum as we discussed in the previous posts has become very expensive for practical day to day usage. Transaction costs routinely run into tens of dollars and often even hundreds of dollars. There are several reasons for this, capital inflows, cost of decentralization etc but the takeaway is that is largely useless atm for the smaller guys.
BSC has dirt cheap costs and blazing speeds. And every application that is build on Ethereum can be replicated on BSC. This has led to a massive migration of small time users from Ethereum to BSC. Transaction volumes on BSC eclipse Ethereum by several orders of magnitude due to the low cost and high speeds.
However BSC does this by compromising on decentralization which is the key value proposition of Defi.
The “DE” in DEFI stands for Decentralized.
Polygon positioned itself as threading the needle, suggesting that it is decentralized as well as fast and cheap. And being EVM compatible anything developed for Ethereum or BSC could also be ported over to Polygon quite easily.
A number of users and developers who were unhappy with BSC due to its centralization issues migrated over to Polygon.
Polygon also aggressively courted several projects by offering incentives and has since tried to position itself as the “got-to” place for new NFT gaming mania.
Almost every major DEFI project that is cross chain has a Polygon presence.
However Polygon can be clunky at times, the user experience at times is less than ideal.
Polygons TVL (Total Value Locked) growth has been stalling.
While Ethereum's growth in the same period of time has continued largely unabated.
So what is happening here?
Other solutions to Ethereum’s cost problem have come up. Solana, Arbitrum, Avalanche, Fantom are just some of the few options on the table. Polygon risks being yesterday's story, who caught an early lead and has since flatlined.
From the #3 position where it was expected to beat BSC and become the default side-chain the Ethereum, it has since been relegated to #8 with even newcomer Fantom ahead of it.
TVL is the industry standard measure for adoption. Polygon is stalling.
In Defi you can have fast upwards growth but as the community discovers other solutions, you can also slide in reverse fast. Polygon for all its early promise is facing this risk.
5/10
Security
Polygon was supposed to be the decentralized alternative to BSC. And its consensus mechanism, active nodes etc all compare favorably to BSC. However it is not widely known that Polygon was largely incubated by Binance who control a significant portion and some argue have access to the kill switches. The founding team (and i could be wrong on this) also have kill switches alongside a few others (purportedly Binance). Now I do not believe it is any of the major stakeholders interest to exercise such as suicidal option, but the fact that it exists raises a question mark.
Decentralization is a gradient and Polygon is firmly on the decentralized side of the spectrum, but it has its problems. On the other hand it has been around for longer than most of the newcomers, which means it is more battle tested. However bugs keep getting reported, with the latest one being reported as of 22 Oct 2021 where 850M of users funds were at risk.
5/10
Tokenomics
Like all major L1 chains Polygon is deflationary. It also plans to introduce a burn mechanism. While I personally hate price appreciation of network tokens as it often defeats the core reason for their existence. Imagine if petrol kept on getting expensive, people are going to switch to other options. While you may argue that petrol does get expensive, it does not increase anywhere close to what things do in the crypto universe where prices increase many fold in a period of days at times.
Most of Polygons distribution is complete, which means less tokens that remain pending in terms of additional supply. The tokenomics itself is fine as far as a speculator is concerned.
9/10
Total Score: 23/40
Should I buy Matic/Polygon? Yes, But ...
There is genuine risk that the project gets supplanted by newer competitors who eat away at its core promise of faster speeds, lower costs while still being decentralized. Keep aside a small allocation and definitely give the ecosystem a whirl.