Polygon's all-time high once teased investors with the promise of $10 per token. Is that dream still within reach? Dive into an analysis of MATIC's potential in the ever-evolving crypto landscape.
The Polygon (MATIC 8.72%) crypto token has a total market footprint of $6.4 billion today. That's the 11th largest name on today's crypto market. Still, it's a long way behind the $221 billion market cap of Ethereum (ETH 18.65%), the smart contracts platform and fundamental cryptocurrency that Polygon was designed to improve. At $0.68 per token, Polygon's coin price also lags far behind Ethereum's $1,850 price tag.
Nobody expects Polygon to catch up to Ethereum in terms of token prices or market values, but its investors are looking back an an all-time high of $2.92 per token with a collective sigh. Once upon a time, this cryptocurrency seemed like a lock for unit prices of $10 and beyond.
Is that dream still alive in the summer of 2023? Let's have a look.
What does Polygon do?
Polygon, formerly known as the Matic Network, is a so-called Layer 2 scaling solution that boosts the processing speed and lowers transaction costs on the Ethereum blockchain network. There are many Ethereum-based Layer 2 solutions on the market already, but Polygon is one of the oldest and clearly the largest name so far. Mantle and Arbitrum are dueling over the runner-up position with market caps of roughly $1.5 billion each.
This token's technical platform is quite sophisticated. Polygon's modified Proof-of-Stake network connects many processing systems called sidechains to the Ethereum base. Each sidechain can manage up to 65,000 transactions per second, backed by Ethereum's security and fully compatible with the parent blockchain's industry-standard smart contract formats. Other tricks include the Plasma protocol, which allows Polygon-based programs to process transactions outside the online blockchain network and then add the new information to the global system in batches.
So Polygon makes Ethereum more scalable, preparing the leading smart contracts platform for a future with dramatically higher real-world use of blockchain-based apps. Yes, Ethereum itself is also boosting its capacity to handle massive transaction volumes without Layer 2 boosters, but the idea is that every possible bit of improvement will be welcome and necessary in the long run. In this vision, cryptocurrencies and blockchain networks will run the world's financial systems on a downright personal level.
The shape of Polygon's future
In the end, Polygon's long-term value will depend on one crucial thing. The more decentralized applications programmers make and people use, the more transactions Ethereum will need to process, presumably with the help of Polygon-style Layer 2 solutions. Soaring real-world usage should rebalance the supply and-demand equation, making the scares resource more valuable over time.
In a complete vacuum, where market friction is zero and all cows are spherical, the demand for smart contracts would simply rise as people start using Ethererum-based financial systems. As the early frontrunner, Polygon should automatically continue to lead the Ethereum-boosting market while the whole crypto sector goes into overdrive. Regulators and legislators around the world come up with reasonable frameworks for owning and using crypto. Everything is hunky-dory, the future is digital and encrypted, and Polygon eventually leaves that $10 target far behind. This ideal scenario may sound unrealistic today, but it could play out over the next couple of years.
On the other hand, many things could go wrong on the way to that Polygon-powered utopia. Regulatory clarity may stay just out of reach for many years, stunting developer activity and public interest in blockchain-driven solutions. Polygon only works with Ethereum so far and some other smart contracts platform could usurp the current king. Likewise, Polygon's pole position among Layer 2 solutions is not guaranteed. In the worst-case scenario, this token might never reach $3 per token, let alone $10.
And as always, the real outcome is very likely to land between those extremes. Realistically speaking, I do expect decentralized finance systems to take over the world's financial wheel in due time -- not tomorrow or next year, but almost certainly in this decade. And Polygon may not be immune to challenges and usurpers but it is the incumbent leader in this early stage. I'd be surprised if another Layer 2 network kicks Polygon off the throne before the MATIC coin has passed the $10 level.
OK, so is Polygon the best crypto to buy now?
Even so, Polygon is not my favorite cryptocurrency to buy in the current market. I would rather put my digital assets to work in a trio of stronger long-term crypto names. Feel free to do your due diligence and prove me wrong, but I'm neither buying nor selling Polygon right now. It's a decent crypto idea in my book, but not the king of the hill.
Anders Bylund has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum and Polygon. The Motley Fool has a disclosure policy.
