Polygon (MATIC) experiences a decline after initial rally
Polygon’s native token, MATIC, saw a 16.4% increase in value when the Polygon 2.0 Goreli testnet was launched on October 4th. However, the resistance at $0.60 proved to be stronger than expected, leading to a 10.6% decline in the following six days.
This decline was worsened by negative news about a key co-founder leaving the project and weak activity in Polygon’s zero-knowledge (ZK) rollup subnet.
As a result, MATIC’s price has erased the gains from the October rally, dampening the bullish momentum created by the protocol’s upgrades.
Polygon 2.0 aims to improve scaling and interoperability
Polygon 2.0 is a network of ZK-based layer-2 chains connected through a cross-chain coordination protocol. It was introduced as a scaling ecosystem plan in June 2023, consisting of four layers: staking, execution, interoperability, and proving. These layers work together to create an interconnected chain ecosystem that enables secure, fast, and cost-effective transfers.
Polygon 2.0 offers enhanced security and privacy through ZK proofs, full compatibility with Ethereum Virtual Machine (EVM), and instant cross-chain interactions without additional security or trust assumptions. The project is also developing Miden, a ZK-STARK-based layer-2 solution.
Polygon faces challenges amidst increasing competition
While the recent retracement in MATIC’s price may be attributed to overexcitement from the testnet launch, other factors have contributed to investors’ concerns about Polygon. For instance, Polygon’s ZK subnet, zkEVM, has lagged behind competitors in terms of activity and deposits.
Data from Artemis reveals significant differences in active addresses and daily transactions between Polygon zkEVM and competing solutions like StarkNet and zkSync ERA. Additionally, Polygon’s total value locked (TVL) is less than half of Arbitrum’s layer-2 scaling solution.
Polygon is also facing direct competition from Optimism (OP) and Base, despite being launched earlier than most Ethereum layer-2 solutions.
Departure of co-founders and declining network activity
The departure of Polygon’s co-founder, Jaynti Kanani, on October 4th after six years with the project raised concerns among investors. This departure comes at a critical time as the project works on its improved multiple-layer scalability solution. The CEO of Polygon Labs, Ryan Wyatt, also left the company earlier in 2023.
Further impacting MATIC’s performance is a decline in the number of active addresses using Polygon’s decentralized applications (Dapps), particularly in the NFT and DeFi markets. Applications like Uniswap, OpenSea, and Move Stake have experienced a decrease in active addresses.
Hot Take: Challenges ahead for MATIC
The recent decline in MATIC’s price can be attributed to reduced network activity, the departure of a co-founder during a crucial upgrade phase, and competition from other ZK scaling solutions. Despite consistent updates and improvements to the Polygon network, there are enough bearish factors to justify this correction. Investors should closely monitor the project’s progress in addressing these challenges and taking advantage of the innovations of Polygon 2.0.
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