Polygon’s native token (MATIC) experienced a 16.4% rise on October 4, coinciding with the launch of the Polygon 2.0 Goreli testnet. However, resistance at $0.60 proved stronger than expected and subsequently fell by 10.6% in 6 days on October 10.
The decline was exacerbated by negative news about the departure of a key co-founder and weak activity in Polygon’s zero-knowledge rollup (ZK-rollup) subnet.
MATIC’s price has erased early October gains, removing bullish momentum from expectations of a protocol upgrade.
Rally tends to follow mainnet and protocol updates
Polygon 2.0 is a ZK-based layer 2 chain network unified through a novel cross-chain coordination protocol. Polygon’s 2.0 scaling technology was launched in June 2023 as a plan for a scaling ecosystem consisting of four layers: staking, execution, interoperability, and attestation. Each layer helps create an interconnected chain ecosystem that facilitates secure, fast and cost-effective transfers.
Advantages of Polygon 2.0 include enhanced security and privacy through ZK proofs, full compatibility with the Ethereum Virtual Machine (EVM), and instant cross-chain interaction without additional security or trust assumptions. Notably, the project is continuing to develop its zero-knowledge scalable transparent argument Miden, a knowledge-based second layer solution.
One could argue that the recent 10.6% retracement simply reflects a correction from the over-excitement triggered by the launch of the testnet. However, other factors could cause investor sentiment toward Polygon to sour. For example, Polygon’s ZK subnetwork zkEVM lags behind competitors in terms of activity and deposits.
Polygon is losing steam as new competition emerges, network data shows
Metrics from on-chain data provider Artemis show a significant difference between Polygon zkEVM’s 6,210 active addresses and StarkNet’s 154,390 and zkSync ERA’s 239,810 active addresses. There is a similar disparity when analyzing the number of daily transactions, with Polygon’s ZK-rollup lagging behind its competitors.
Taking a broader look at the total number of transactions and deposits in the Polygon network yields suboptimal results. For example, Polygon’s total value locked (TVL) is $756 million, less than half that of Arbitrum’s Layer 2 scaling solution, according to DefiLlama.
It’s worth noting that although Polygon launched in June 2020, much earlier than most Ethereum layer 2 solutions, it now faces direct competition from Optimism and Base.
Polygon co-founder Jaynti Kanani’s departure on Oct. 4 after six years with the project also sparked a degree of investor unease as the project neared completion of key work on its improved multi-tier scalability solution. Interestingly, this decision follows the departure of Polygon Lab CEO Ryan Wyatt in July 2023, shortly after joining the company in February 2022.
The decline in the number of active addresses using the Polygon network’s decentralized applications (DApps) further affects MATIC’s performance.
On average, the number of active addresses for the top 12 DApps on the Polygon network has dropped by 17% over the past 30 days. This issue is particularly worrisome in the NFT and decentralized finance markets, particularly affecting applications such as Uniswap, OpenSea, and Move Stake.
Related: Circle launches native USDC token on Polygon
Whatever the reason behind the MATIC token surge in early October, the recent 10.6% negative performance can be attributed to reduced network activity, the departure of a co-founder during a critical upgrade phase, and intense competition from other ZK scaling solutions.
Ultimately, while the team has been providing necessary updates and improvements to the Polygon network, there has been enough bearish news flow to justify this adjustment. Investors should pay close attention to the project’s progress in addressing these challenges and leveraging Polygon 2.0 innovations.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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