Polygon’s native token (MATIC) saw a 16.4% rise coinciding with the launch of the Polygon 2.0 Goreli testnet on October 4. However, resistance at $0.60 proved stronger than expected, and was followed by a 10.6% decline over the previous six days. Until October 10.
This decline was exacerbated by negative news regarding the departure of a key founder and weak activity in Polygon’s zero-knowledge (ZK) aggregator subnet.
MATIC price erased previous gains from the early October rally, wiping out bullish momentum driven by expectations of protocol upgrades.
Clusters tend to follow mainnet and protocol updates
Polygon 2.0 is a network of ZK-based layer 2 chains, unified via a new cross-chain coordination protocol. Polygon’s scaling technology 2.0 was unveiled in June 2023 as a plan for a scaling ecosystem consisting of four layers: staking, execution, interoperability, and proof. Each of these layers contributes to an interconnected ecosystem of chains that facilitate secure, fast and highly cost-effective transfers.
Among the benefits of Polygon 2.0 are enhanced security and privacy with ZK proofs, full compatibility with the Ethereum Virtual Machine (EVM), and instantaneous cross-chain interactions without the need for additional security or trust assumptions. It is worth noting that the project is continuing to develop the ZK-STARK-based second layer solution, Miden.
One might argue that the recent 10.6% correction merely reflects an adjustment to the overexcitement caused by the testnet launch. However, other factors may have contributed to worsening investor sentiment towards Polygon. For example, Polygon’s ZK subsidiary, zkEVM, lagged behind competitors in terms of activity and deposits.
Network data shows that Polygon is losing ground as new competition emerges
Metrics from Artemis, an on-chain data provider, reveal a significant discrepancy between Polygon zkEVM’s 6,210 active addresses compared to 154,390 addresses for StarkNet and 239,810 for zkSync ERA. A similar discrepancy exists when analyzing the number of daily transactions, where Polygon’s zero-knowledge backlog also lags behind competitors.
Taking a broader perspective on the total number of transactions and deposits in the Polygon network leads to suboptimal results. For example, Polygon’s total value locked (TVL) is $756 million according to DeFiLlama, which is less than half of Arbitrum’s layer 2 scaling solution.
It is worth noting that despite launching much earlier than most Ethereum Layer 2 solutions in June 2020, Polygon now faces direct competition from Optimism (OP) and Base.
The departure of Polygon co-founder Jaynti Kanani on October 4 after six years working on the project also sparked a degree of upset among investors, given the project’s proximity to critical completion of the enhanced multi-layer scalability solution. Interestingly, this decision follows the departure of Polygon Lab CEO Ryan White in July 2023, shortly after he joined the company in February 2022.
What further affected MATIC’s performance was the decrease in the number of active addresses using the Polygon network’s decentralized applications.
On average, the top 12 decentralized apps on the Polygon network saw a 17% decrease in the number of active addresses over the past 30 days. This issue has been particularly concerning in NFT and decentralized finance (DeFi) markets, particularly affecting apps like Uniswap, OpenSea, and Move Stake.
Related: Circle Launches Native USDC Tokens on Polygon
Regardless of the reasons behind the MATIC token’s rally earlier in October, the recent negative performance of 10.6% can be attributed to low network activity, the departure of one of the founders during a critical upgrade phase, and intense competition from other ZK scaling solutions.
Ultimately, there is enough bearish news flow to warrant this correction, even though the team has been constantly providing necessary updates and improvements to the Polygon network. Investors should closely monitor the project’s progress in addressing these challenges and leveraging Polygon 2.0 innovations.
This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.