Key Insights & Takeaways
Q3 2023 saw the inception of Phase 0 in the deployment of Polygon 2.0, set in motion by the first three proposals aimed at upgrading the native MATIС token to the hyperproductive POL. These events became a significant catalyst for growth, impacting the Polygon staking ecosystem and the entire community:
The total stake in Polygon surged by 7.32% in 2023, reaching an all-time high in Q3 despite price fluctuations, reflecting community support.
Polygon's delegator community grew by 19.4% in 2023, with steady Q3 expansion driven by partnerships with industry leaders.
The Staked Ratio remained stable, correlating with a proportional annual percentage rate (APR) decrease, in line with MATIC tokenomics.
Top validators play a crucial role in MATIC staking, with Everstake, Abyss, Allnodes, and PrometheusPool demonstrating consistent maximum performance.
The top 20 Polygon validators control 83.9% of the total staked MATIC, emphasizing the need for a more decentralized validator ecosystem.
This is the second report in the series, and Everstake intends to publish regular updates on the Polygon staking ecosystem. Review our previous Polygon MATIC Staking: Chain Analysis Q2'2023 report for a more comprehensive understanding.
If referencing or using materials from this report, kindly attribute Everstake and provide a link to the original piece.
For any inquiries, feel free to contact our Blockchain Manager on X.
Introduction: Exploring Polygon And Matic Staking
The Polygon ecosystem flourishes, and thorough staking information is needed more and more. We at Everstake offer an extensive, in-depth analysis, providing you with a deep insight into the performance of the Polygon network and empowering you to make well-informed decisions.
What Is Polygon?
Polygon represents a suite of protocols created to address Ethereum's scalability limitations. The Polygon network tackles them by processing transactions on a distinct Ethereum-compatible blockchain. After processing, transactions are subsequently returned to the main Ethereum blockchain.
This method effectively alleviates network congestion on Ethereum, leading to faster transactions and reducing transaction costs to fractions of a cent.
In essence, Polygon, previously recognized as the Matic network, offers a user-friendly framework for new and established blockchain projects to operate on Ethereum without encountering scalability hurdles.
The native cryptocurrency of Polygon is MATIC. It is an ERC-20 token, meaning it's built on the Ethereum blockchain. MATIC plays a crucial role in governing and safeguarding the Polygon network through staking and covers transaction fees within the network.
While Polygon has a proven track record of successfully developing and operating various products, including Polygon PoS, zkEVM, Supernets, Miden, ID, and more, the team introduced a fresh roadmap in July 2023 named Polygon 2.0. Polygon 2.0 aspires to drive blockchain's mass adoption by transforming it into the value layer of the internet.
What Is MATIC Staking?
Staking MATIC means locking up MATIC tokens to participate in the proof-of-stake consensus mechanism of the Polygon network. In return, users are rewarded with additional MATIC tokens.
Staking serves dual purposes for the blockchain ecosystem:
Security: In a proof-of-stake system, validators are selected to create new blocks and validate transactions based on the number of tokens they have staked. Validators have a robust financial incentive to act honestly, as they risk losing their staked tokens if they validate fraudulent transactions.
Consensus and Governance: Token holders can vote on proposals and protocol modifications, thus contributing to the platform's future direction.
In essence, Polygon staking is pivotal in enhancing the blockchain ecosystem's scalability, efficiency, and sustainability. Simultaneously, it allows users to earn rewards and actively participate in shaping the network's governance.
Essential Definitions
Here's a concise breakdown of the fundamental terms outlined in the report:
Stake (Voting Power) – the quantity of staked MATIC tokens.
Validators – node operators within the Polygon responsible for generating new blocks and validating transactions.
Delegators – MATIC holders who have entrusted their tokens to validators to participate in staking and receive staking rewards.
APR – the annual percentage income the blockchain offers as a staking reward.
Staked Ratio – a percentage metric representing the portion of a cryptocurrency's total supply staked in PoS or DPoS networks.
Zero-knowledge (ZK) Technology: ZK is a complex but game-changing cryptographic technique for blockchain scalability and privacy. As a key focus for the Polygon team in recent years, ZK technology enables parties to prove and verify information without accessing it.
Significant Q3 Events and Their Influence on MATIC Staking
The dynamics of MATIC staking are intricately tied to the broader developments within the Polygon ecosystem. In this section, we delve into the noteworthy events of the third quarter and examine their far-reaching impact on the MATIC staking ecosystem.
POL And New Tokenomics Introduction
The Polygon 2.0 concept, initially announced in June, further materialized during the third quarter of 2023. This involved the PoS Polygon upgrade in zkEVM Validium and the presentation of POL, the evolved native asset, followed by unveiling of new tokenomics.
POL offers cross-chain validation and rewards, marking an upgrade and rebranding of the MATIC token.
The distinctions between MATIC and POL tokenomics are significant. Unlike MATIC, which had a fixed total supply of 10 billion, POL introduces a 2% annual inflation rate over ten years. Of this, 1% is allocated for validator rewards, encouraging active network participation, while the remaining 1% supports ecosystem growth through a newly established Community Treasury governed by the community.
Phase 0 of the Polygon 2.0 rollout began on September 12, unveiling the first three proposals. These include the transition plan, upgraded Polygon 2.0 token specifications, and enhancements to the Polygon PoS native token. Outlined specific changes are set to take effect in early Q4 of this year, following community approval.
Polygon 2.0 Governance Model
Polygon 2.0 brings forth a new governance model to empower the community and ensure decentralized decision-making across the entire Polygon ecosystem. The framework comprises three key governance pillars, each addressing distinct aspects of Polygon's governance.
Protocol Governance: Leveraging the Polygon Improvement Proposal (PIP) framework, the community can actively propose and develop upgrades for Polygon protocols, fostering participation and growth.
System Smart Contracts Governance: Smart contract upgrades within the ecosystem will be managed by the Ecosystem Council, a community-driven body. This governance model ensures a balance between security and efficiency.
Community Treasury Governance: The Community Treasury, created to support ecosystem growth, will be initially overseen by a Community Treasury Board responsible for fund allocation. Later on, community-driven governance mechanisms will be introduced, including models like quadratic token voting and self-sovereign identities to enhance efficiency and resilience.
These governance pillars empower the Polygon community to actively shape the ecosystem's future, promoting transparency, inclusivity, and decentralization.
The Evolution of Supernets into the Polygon CDK
Polygon Labs introduced Polygon CDK (Chain Development Kit) on August 30, 2023, reimaging the landscape of appchain design.
CDK simplifies the deployment of Ethereum Layer 2 chains with the power of zero-knowledge (ZK) technology, accompanied by an open-source codebase that empowers developers and fuels innovation. Its remarkable interoperability seamlessly connects chains to the combined liquidity of Polygon and Ethereum, while modularity allows for tailored networks.
Notably, pioneering projects like Canto quickly recognize the potential of Polygon CDK. With a migration to a ZK-powered Layer 2 solution on Ethereum, Canto aims to drive the progress of decentralized finance and real-world asset adoption. This move reflects the broader trend in the blockchain ecosystem towards scalable, secure, and interconnected solutions.
Polygon's Staking Total Surges in 2023, Setting New Records in Q3
Since the start of 2023, the total stake in the Polygon network has surged by 7.32%, reaching an impressive 3.7 billion MATIC tokens. This growth culminated in an all-time high during Q3, specifically at the end of August 2023. Despite a relatively modest quarter-over-quarter increase of 0.88%, the past three months showed noteworthy spikes.
Notably, the total stake experienced a remarkable 3.3% month-over-month surge in August alone. This surge was likely driven by the anticipation surrounding the upcoming upgrades in the Polygon 2.0 rollout.
Growing Delegator Community
Polygon's staking ecosystem has witnessed a substantial rise in delegators since the start of 2023, and Q3 continued the positive trend.
Over this year, the network has welcomed over 4,000 new delegators, marking a remarkable 19.4% increase in their ranks. The quarter-on-quarter growth amounted to 8.61%, underscoring the ongoing expansion and engagement within the Polygon staking community.
This surge signifies a growing and active community, a key factor in enhancing the network's security, decentralization, and overall trustworthiness.
Price Fluctuations and Staking Resilience
The events of June, set in motion by the SEC's contentious lawsuit against Binance, cast a shadow over MATIC's price, resulting in a significant and enduring decline.
Throughout Q3, the native Polygon token peaked in July at $0.85. However, the price experienced a downturn in the subsequent two months, concluding the quarter at $0.53, marking a 37.6% decrease.
While the chart reveals a certain correlation with price fluctuations, particularly in September 2023, it's noteworthy that even during the most noticeable drop in MATIC, the amount of stake on the Polygon network continued to rise.
Influence of Staked Ratio on Polygon Staking Rewards
As Q3 2023 drew close, the Staked Ratio stood at 40.56%, resulting in an APR of 5.38%. This ratio remained stable over the quarter, exhibiting minimal fluctuations within a 0.1% range.
This stability in staking participation reflects the sustained confidence and commitment of the Polygon community. Despite the crypto market's inherent volatility, the Polygon ecosystem continued to provide an attractive and reliable staking environment, attracting both existing and new participants.
The graph illustrates a clear correlation between the Staked Ratio and APR, indicating that the APR proportionally decreases as the Staked Ratio rises. This trend aligns with MATIC tokenomics, wherein the reduction in APR is a natural outcome as more MATIC tokens get staked.
Initially, stakers enjoy higher rewards, but as the tokens locked in staking contracts increase, these rewards gradually diminish. With the ongoing surge in interest and participation in MATIC staking, we anticipate a further decline in APR.
Brilliant Performance of Most Trusted Validators
To assess the performance of the most trusted validators within the Polygon staking ecosystem, we have identified validators with the highest number of delegators.
The primary factor directly influencing the Annual Percentage Rate (APR) offered by a specific validator is its performance, which measures how efficiently it fulfills its role as defined by network rules.
Validators within Polygon have distinct roles, which can be categorized into three main segments:
Ethereum Layer: This encompasses contracts on the Ethereum mainnet.
Heimdall Layer: Named after the Norse god guarding the rainbow bridge to Asgard, it includes Heimdall nodes responsible for overseeing staking contracts on Ethereum and relaying Polygon Network checkpoints back to the Ethereum mainnet.
Bor Layer: This comprises block-producing Bor nodes, shuffled by Heimdall nodes.
Validators bear various responsibilities, from running full nodes to ensuring the commitment of checkpoints to the Ethereum mainnet. Their performance in these tasks is evaluated through three key metrics: checkpoints, Heimdall blocks, and Bor blocks. For example, missing checkpoints directly impact the APR for delegators, regardless of a validator's fee structure.
Remarkably, 54.85% of Polygon delegators trust these ten validators out of the active set of 104 validators. This substantial trust highlights the reliability and competence of these block producers. Everstake, securing the 1st position in the number of delegators during Q3 2023, accounts for a 13.14% share of all stakers within the network.
Notably, all top validators maintain Healthy status per the Validator Performance Benchmark, which assesses their performance regarding signed checkpoints. This underscores network delegates' thoughtful and discerning approach when selecting a block producer.
However, only five validators, namely Everstake, The Abyss, Allnodes, StakePool, and PrometheusPool, consistently demonstrate top performance across all three key performance indicators.
Top Validators Dominance
As of the conclusion of September 2023, the top 20 Polygon validators command an impressive 83.9% of the total staked MATIC, surpassing 2.7 billion tokens. Remarkably, these validators constitute just 51.71% of the total delegators.
This pronounced concentration of stake within a limited number of validators underscores the importance of nurturing a more diverse and decentralized validator ecosystem. Encouraging broader participation from additional validators and delegators holds significant potential for fortifying the network's resilience and robustness.
Polygon Future Prospects
In the upcoming roadmap, Polygon and its community eagerly anticipate several crucial upgrades that promise to transform the project comprehensively. Foremost among these is the transition of Polygon PoS to zkEVM Validium, a move aimed at enhancing Ethereum's scalability. While challenging for an already established network, this transition is scheduled for Q1 2024. This shift promises to bolster security, decentralization, and scalability, aligning seamlessly with the Polygon 2.0 ecosystem for expanded opportunities.
The prospects for Polygon appear promising and dynamic. With a robust roadmap that includes critical upgrades to enhance scalability, security, and decentralization, Polygon is well-positioned to continue its growth trajectory.
The Polygon 2.0 ecosystem will likely attract more developers and projects seeking efficient and scalable solutions. As the broader blockchain and crypto space continues to evolve, Polygon's adaptability and commitment to innovation position it as a formidable player in shaping the future of decentralized technologies.
Additionally, its expanding community and successful partnerships with industry leaders suggest a bright future with the potential to become a foundational layer in the evolving landscape of blockchain and Web3 technologies.
To simplify the staking process for our delegators, we have developed the native MATIC staking platform. This platform incorporates all essential functionalities and offers a user-friendly interface for effortless MATIC staking.
