Surging usage of
Polygon Network’s Ethereum layer 2 scaling solution allowed that platform’s
token (MATIC) to largely escape the fate of other cryptocurrencies in May
brought down by crash in the price of bitcoin.
MATIC, currently ranked 18th as per market capitalization by Messari,
rallied 120% in May even as bitcoin fell by 35%. Ether, polkadot, cardano, XRP, and decentralized finance (DeFi)-blue chips
suffered bigger losses, pushing the total market capitalization of the crypto
universe down by 24%.
MATIC was able to withstand the the worst effects of the downdraft
thanks to Polygon’s soaring usage and constant growth in the congestion and
high costs that plague the DeFi-dominating Ethereum blockchain, as analytics
firm IntoTheBlock mentioned in its research note
published on June 2.
“Throughout 2021, Ethereum fees skyrocketed up to 845% compared to the
year before; currently, a transaction on the network costs around
$4.819,” IntoTheBlock said. “On the other hand,
transacting on the Polygon network only costs around $0.001 to transfer $200.”
As such, several DeFi protocols flocked to Polygon – a sidechain running
tangent to Ethereum’s blockchain, offering high transaction output and
relatively low costs without compromising security. Scaling refers to
increasing the throughput of the system, as measured by transactions per second.
MATIC’s impressive performance proves a cryptocurrency backed by strong
fundamentals can largely hold its own against a price slide in bitcoin. As
such, the token could continue to appreciate in the coming months unless
Ethereum sees a sustained drop in transaction costs or usage.
Ethereum rivals like Polkadot, Solana, and Binance Smart
Chain would also seem ready to gain. However, as Polygon is a sidechain that
works in conjunction with Ethereum, it benefits from Ethereum’s dominating network
effects and thus holds an edge over blockchains that seek to replace the
market-leading giant. Perhaps that’s why tokens powering Ethereum rivals
Polkadot, Solana, and Binance Smart Chain suffered double-digit losses in May
even as MATIC extended a four-month run of gains. A recent string of flash loan
attacks on products built on the Binance Smart Chain likely didn’t help the
reputation of the would-be Ethereum dethroners either.
While MATIC proved remarkably resistant in the face of bitcoin’s price
crash, it wasn’t completely immune. The majority of gains happened in the first
half of the month, before the biggest cryptocurrency fell from $58,000 to
$30,000 in the eight days to May 19 on concerns regarding the negative
environmental impact of crypto mining and China regulatory fears. MATIC’s
price hit an all-time high of $2.72 for a year-to-date gain of 248% before
bitcoin’s troubles took their toll.
Rally accompanied by
network growth
Before MATIC began giving back some its gains in mid-May, the token’s
performance was rising in line with the soaring usage of the protocol itself.
During the month, the number of average daily active users on Polygon surged by
285% from 7,500 to 28,873, according to blockchain data provider Covalent. The
sidechain became busier than ever as more users accessed DeFi via the low-cost
scaling solution.
Per Covalent, the number of unique addresses using Aave protocol on
Polygon shot up by 156% to 15,769 in May. The decentralized money market giant
received over $5 billion in liquidity via the layer 2 scaling solution.
Aave announced integration with Polygon in
April.
Meanwhile, average daily unique users on Polygon-based decentralized
exchange QuickSwap rose by 302% to over 10,000, and the liquidity on the
platform increased by 68% to $924.78 million, Covalent said in an email.
“The almost fee-less trading Polygon offers offered a breath of fresh
air to seasoned DeFi traders that have been suffering under the weight of
extremely high gas prices [Ethereum fees] for some months now,” Tim Frost, CEO
of Yield app, said while explaining reasons for Polygon and QuickSwap’s
success.
Looking ahead
Polygon’s performance has led the protocol to receive validation from
prominent investors like Mark Cuban. Further, the token has been added to the
Bitwise 10 Large Cap Crypto Index (BITX) with a weightage of 1.03%, according to LiveMint. The index is managed by
Bitwise Asset Management, a crypto asset manager with $1.5 billion worth of
assets under manager.
“The early rally seemed to be driven by a mix of savvy DeFi users and
retailers, but now popular investors like Mark Cuban are publicly diving in,”
Nick Mancini, chief community officer at Trade The Chain, told CoinDesk.
Cuban confirmed being an investor in Polygon
on May 26, but refrained from disclosing the size or composition of his stake.
However, Polygon’s co-founder Sandeep Nailwal told Economic Times on May 27 that
his project received a “sizeable investment” from the billionaire entrepreneur
and not through a simple purchase of tokens.
“I was a Polygon user and find myself using it more and more,” Cuban said in an email to CoinDesk at the
time. His website describes Polygon as “the first
well-structured, easy-to-use platform for Ethereum scaling and infrastructure
development.”
Trade The Chain’s Mancini said he expects more institutional inflows
into DeFi assets and a continued rally in MATIC, albeit after some downside in
June. The token has come under pressure this week, falling by 15% to
$1.58. Still, prices are up 8,800% year-to-date.
Yield CEO Tim Frost said Polygon and QuickSwap’s momentum might slow
once the Ethereum 2.0 (proof-of-stake upgrade) is completed. Developers
estimate that the upgrade will happen by the end of this year or early 2022.
After that, Ethereum founder Vitalik Buterin plans to implement the sharding upgrade to
ease congestion and bring down fees.
However, Polygon CEO Sandeep Nailwal said he’s confident that layer 2
scaling solutions will prevail even after the upgrade allows Ethereum
transaction costs to decline.
“Ethereum 2.0 will become 64 times more scalable than Ethereum is now,
but the demand is 1,000 times than where we are. You will need L2
scalability,” Nailwal told CoinDesk.
Source: coindesk
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#Price #Crash
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