Polygon (MATIC) Rally Comes to an End as Competitors Take Over the Market

The rally of Polygon’s native token, MATIC, recently came to an end after experiencing a 16.4% surge following the launch of the Polygon 2.0 Goreli testnet on October 4th. However, the resistance at $0.60 proved to be stronger than anticipated, resulting in a 10.6% decline over the following six days.

This decline was further exacerbated by negative news surrounding the departure of a key co-founder and weak activity in Polygon’s zero-knowledge rollup (ZK-rollup) subnet. As a result, MATIC’s price has wiped out previous gains, erasing the bullish momentum driven by the expectations of the protocol’s upgrades.

Rallies and Updates: A Trend in the Crypto Market

It’s not uncommon for tokens to experience rallies following mainnet and protocol updates. In the case of Polygon 2.0, the network of ZK-based layer-2 chains unified via a cross-chain coordination protocol, the upgrade aims to enhance security, privacy, and scalability. The four layers of Polygon 2.0 (staking, execution, interoperability, and proving) work together to create a secure, fast, and cost-effective transfer ecosystem.

The benefits of Polygon 2.0 include enhanced security and privacy through ZK-proofs, full compatibility with the Ethereum Virtual Machine (EVM), and instant cross-chain interactions without additional security or trust assumptions. The project is also developing its Zero-Knowledge Scalable Transparent Argument of Knowledge-based layer-2 solution, Miden.

However, despite the optimistic upgrades, other factors have contributed to the decline of investor sentiment toward Polygon. One such factor is the lagging activity and deposits in Polygon’s ZK subnet, zkEVM.

New Competition Emerges: Polygon Losing Steam

Metrics from Artemis, an on-chain data provider, reveal a significant disparity between Polygon’s zkEVM and its competitors. While Polygon has 6,210 active addresses, StarkNet has 154,390, and zkSync ERA has 239,810. A similar discrepancy can also be seen in the number of daily transactions, with Polygon trailing behind its competitors.

Moreover, when considering the total number of transactions and deposits, Polygon falls short compared to others in the Ethereum layer-2 space. For example, Polygon’s total value locked (TVL) stands at $756 million, which is less than half of Arbitrum’s layer-2 scaling solution.

Although Polygon was launched earlier than most Ethereum layer-2 solutions in June 2020, it now faces direct competition from Optimism and Base. The departure of Polygon’s co-founder and a decline in the number of active addresses using the Polygon network’s decentralized applications (DApps) have also worsened MATIC’s performance.

Looking Ahead: Addressing Challenges and Captializing on Innovations

Despite the recent decline, Polygon continues to deliver updates and improvements to its network. However, it’s important for investors to closely monitor the project’s progress in addressing the challenges and capitalizing on the innovations of Polygon 2.0.

While there is enough bearish news flow to justify the correction, Polygon’s team remains dedicated to navigating these challenges and maintaining the project’s growth. As always, investors should conduct their own research and stay informed about the latest developments in the cryptocurrency market.

This article is for general information purposes only and should not be taken as legal or investment advice. The views expressed here are solely those of the author and do not necessarily represent the views of Cointelegraph.

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