In 2023, Polygon underwent a comprehensive overhaul which brought about significant transformations across various facets of the project and its core vision. The year was marked by numerous achievements, endeavors, and challenges, leaving behind a nuanced blend of satisfaction and reflection.
In this transformative year, the Polygon ecosystem experienced significant growth.
- Polygon 2.0 introduced major changes, including the upcoming transition of Polygon PoS to zkEVM Validium and the unveiling of the POL token with unique tokenomics.
- Supernets evolved into Polygon CDK (Chain Development Kit), supporting over 20 alpha projects with ZK L2s.
- Unique addresses on Polygon PoS surged by 91.57% in 2023, exceeding the previous year's growth by 186%.
- Daily active addresses maintained consistent stability, ranging from 285k to 733k, showcasing a robust and engaged user base.
- Polygon PoS processed 1.11 billion transactions in 2023, the second-highest annual performance in the network's history.
- On Thursday, November 16, 2023, the network achieved an all-time high with 16,449,264 transactions, reaching a peak throughput of 255 transactions per second.
- Total MATIC stake exhibited stability, fluctuating between 3.4-3.7 billion and peaking in August 2023.
- The number of delegators increased by 22.7% throughout the year, reaching 24,493, thus indicating the continuous expansion in the staking community.
- The number of 0% fee validators on Polygon continued to grow, reaching 34 and ensuring the broader general appeal for delegators seeking maximum rewards.
- Polygon validators submitted 14,555 checkpoints in 2023, achieving a record monthly submission of 1,148 in October.
This is the third report in the series of Everstake’s regular updates on the Polygon staking ecosystem. Previous reports are available on our official website.
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Introduction: Understanding Polygon
Polygon is a suite of protocols designed to address the scalability limitations of Ethereum. Operating on a distinct Ethereum-compatible blockchain, the Polygon network processes transactions and seamlessly returns them to the main Ethereum blockchain, effectively mitigating network congestion. This approach results in faster transactions and significantly reduces transaction costs to mere fractions of a cent.
Formerly known as the Matic network, Polygon is a user-friendly framework that enables both new and established blockchain projects to operate with Ethereum security without encountering scalability challenges.
The native cryptocurrency of Polygon is MATIC, an ERC-20 token built on the Ethereum blockchain. MATIC plays a pivotal role in governing and securing the Polygon network through staking. Unlike most PoS blockchains, it covers transaction fees within the network.
With a proven track record of successfully developing and operating various products, including Polygon PoS, zkEVM, CDK, Miden, ID, and more, the blockchain’s team introduced a fresh roadmap dubbed Polygon 2.0 in July 2023.
Terms and Definitions
For the purposes of this report, the terms below are defined as follows.
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 rate to the original stake that the blockchain offers.
Staked Ratio – a percentage metric representing the portion of a cryptocurrency's total supply staked in PoS or DPoS networks.
Zero-knowledge (ZK) Technology – a method by which one party (the prover) can prove to another party (the verifier) that a given piece of data is true while avoiding conveying to the verifier any further information.
Network Development: The Most Important Upgrades of 2023
In 2023, the Polygon ecosystem experienced a dynamic phase of expansion. The introduction of Polygon 2.0 and the upcoming transition to zkEVM Validium are expected to bring about elevated scalability and efficiency for MATIC delegators.
The performance of the Polygon network and the dynamics of MATIC staking are closely linked to the overall advancements within the Polygon ecosystem. This segment explores the significant events of the year and analyzes their effect on the Polygon ecosystem.
Polygon zkEVM Mainnet Beta Launch
The Polygon zkEVM Testnets have garnered much interest across the community and showcased substantial growth throughout the entire ecosystem. Along this journey, Polygon zkEVM has been continuously improving and has become faster, more cost-effective, and more secure.
On March 27, Polygon Labs introduced the highly anticipated zkEVM Mainnet Beta, aiming to scale Ethereum. The launch event featured Ethereum co-founder Vitalik Buterin conducting the inaugural test transaction.
Polygon zkEVM sets the benchmark for EVM equivalence, successfully passing 100% of the Ethereum test vectors relevant to a zkEVM. Developers can effortlessly apply code from Ethereum to build on Polygon zkEVM without any modifications—all Ethereum tools seamlessly integrate with Polygon zkEVM, providing frictionless scaling.
The launch of the Polygon zkEVM Mainnet Beta marked a significant milestone for both Polygon and Ethereum. Still, this is just the initial phase. In the not-so-distant future, ZK is expected to revamp every facet of the Polygon ecosystem.
Polygon 2.0 Upgrade
In June 2023, Polygon Labs introduced Polygon 2.0, envisioning it as the Value Layer of the internet. This involved the upgrade of PoS Polygon to zkEVM Validium, the introduction of POL as the evolved native asset, and the establishment of new tokenomics.
Indeed, POL tokenomics differs significantly from that of MATIC. POL introduces cross-chain validation and rewards and incorporates a 2% annual inflation rate over a decade, with 1% allocated to validator rewards to encourage active network participation and the remaining 1% supporting ecosystem growth through a newly established Community Treasury governed by the community.
The initial phase of the Polygon 2.0 rollout, Phase 0, commenced on September 12, unveiling the first three proposals. These encompass the transition plan, upgraded Polygon 2.0 token specifications, and enhancements to the Polygon PoS native token. Already at the beginning of the fourth quarter of 2023, the new token’s smart contracts and the migration contract were launched on the mainnet.
The Transformation of Supernets into the Polygon CDK
On August 30, 2023, Polygon Labs launched the Polygon CDK (Chain Development Kit), which introduced a new approach to appchain design.
The CDK streamlines the deployment of Ethereum Layer 2 chains through the integration of zero-knowledge (ZK) technology, supported by an open-source codebase that empowers developers and stimulates innovation. Its impressive interoperability seamlessly links chains to the collective liquidity of Polygon and Ethereum, while its modular structure enables the creation of customized networks.
For more insights into the Polygon CDK, explore our article detailing its distinctive features and role in the ecosystem: Polygon CDK: Unlocking an Endless Universe of Interconnected Blockchains.
Throughout the year, the network of CDK-enabled chains continued expanding at a noticeable rate. Over the five months since its introduction, the Polygon CDK has brought on board 20+ alpha projects, all seeking to tap into the potential of ZK L2s. The most noticeable of them are briefly reviewed below.
Immutable
Immutable is creating a gaming chain that offers EVM compatibility, low cost, and Ethereum security, allowing for a cutting-edge gaming ecosystem with Polygon's support.
OKX
OKX has launched an Ethereum-based ZK L2 network built with Polygon CDK. X1, now in testnet, is connecting OKX’s 50 million+ community to the wider Polygon & Ethereum ecosystem.
Gnosis
The Gnosis team is developing a decentralized payment network and self-storage card, aiming to be a cornerstone for app developers on Polygon CDK-powered ZK Layer 2.
Near
Polygon Labs and NEAR Foundation are collaborating to develop a zero-knowledge (ZK) prover for Wasm blockchains, enhancing interoperability with Ethereum and Polygon CDK chains. NEAR becomes a core contributor to Polygon CDK, providing developers with more customizability and options, while the zkWasm prover improves scalability and decentralization for NEAR Protocol.
Celestia
Celestia's data availability solution achieves a significant milestone by integrating with Polygon CDK. It simplifies the launch of high-throughput Layer 2 chains on Ethereum through the combination of out-of-the-box data availability and Polygon CDK's zero knowledge-powered interoperability.
Flipkart
Flipkart, one of India's leading digital commerce entities, is launching a dedicated chain built with Polygon CDK to scale its FireDrops Web3 loyalty program.
Wirex
A principal member of Visa and Mastercard, Wirex is using Polygon CDK to build its own payments-focused L2 called W-Pay.
Astar
Positioned as a gateway for international gaming and entertainment ventures to enter the Japanese market, Astar zkEVM accelerates blockchain adoption for global enterprises.
A Spotlight on Polygon PoS Users: Unique and Daily Active Addresses
Over 2023, the number of unique addresses on Polygon PoS has increased by an incredible 91.57%. This marked the highest annual figure in the project's history, surpassing the number of new unique addresses in 2022 by an impressive 186%.
With a total increase of over 187M addresses, the rate peaked in April, when their number increased by as much as 9.86% over the month with 22M new addresses.
This surge coincided with the launch of the Polygon zkEVM Mainnet Beta, suggesting heightened enthusiasm within the community.
In 2023, there was a consistent increase in active addresses on Polygon PoS, a growth of 19.5% compared to 2022. Over the year, the daily count of active addresses on Polygon PoS exhibited consistency, fluctuating within the range of 285k to 733k. This indicates that Polygon PoS has effectively maintained a strong user base and ensured a steady stream of daily user engagements.
The fourth quarter of 2023 saw a surge in network activity, peaking at 43,403,837 active addresses. Notably, on October 21, a remarkable milestone was achieved with 733,243 daily active addresses—this is a runner-up only to Polygon’s ATH and the highest figure for 2023.
Phenomenal User Activity: Polygon PoS Transactions
Over the entirety of 2023, Polygon PoS has handled 1.11 billion transactions, marking the network's second-highest annual performance, surpassed only by the 1.24 billion transactions in 2021.
The noteworthy surge in the second half of Q2 resulted in Polygon PoS processing over 17M transactions and achieving a peak throughput of 255 transactions per second —equivalent to 2-3 times the entire Ethereum ecosystem combined. Validators generated approximately 1 million in total transaction fees in a single day despite gas fees reaching exorbitant levels. Block rewards amounted to over 155,000 MATIC, contributing to a daily revenue of around 1.2 million for validators. The capability of the Polygon PoS chain to handle this increased load is an immediate result of Polygon’s design and the recent PoS upgrades implemented over the past few months.
The abrupt and substantial surge in transactional activity on Polygon (MATIC) can be traced back to the emergence of a novel token category inspired by Bitcoin's Ordinals. Referred to as PRC-20 tokens, these tokens distinguish themselves from conventional ERC-20 tokens by being generated through modifications to transactional calldata. Enthusiastic users on the Polygon network initiated the minting of numerous PRC-20 tokens, as exemplified by the one dubbed "POLS." In this period, a new record was established for the highest number of transactions, reaching an unprecedented 16,449,264 transactions on Thursday, November 16, 2023.
Polygon Staking Ecosystem Over 2023
In general, 2023 for Polygon was marked by stability, growth, and transformative developments within the MATIC staking ecosystem.
Stability of the Total Stake
Over the year, the overall MATIC staking exhibited notable stability, fluctuating within the range of 3.4-3.7 billion. The staked amount reached its yearly peak of 3.71 billion in August 2023, coinciding with announcements of upgrades as part of the Polygon 2.0 rollout and heightened attention to the network.
The highest upsurge in MATIC’s stake/unstake delta occurred in January 2023, when a monthly increase of 5.5% was recorded in total stake. Together with a rise in active PoS addresses, TVL, and steady growth in MATIC's price, it marked a substantial shift in the general activity within the ecosystem.
The Ranks of MATIC Delegators Continue to Grow
The staking ecosystem of Polygon has experienced a significant inflow of delegators since the beginning of 2023, and the positive trend continued into Q3.
Throughout the year, the number of delegators on Polygon has increased by 22.7%, reaching 24,493. This signifies the increasing engagement of users within Polygon’s staking community.
Validator Performance Framework Works Flawlessly
In early 2023, Polygon PoS saw the launch of the Validator Performance Framework. At the time time, 13 validators left the set due to their subpar performance, including Decentral Games, VK Labs, and Draft Kings. Still, over the year, the validator set expanded, gaining 18 new players and thus enhancing network decentralization.
Notably, the Validator Performance Framework introduced a health status feature on the Polygon staking dashboard, utilizing colors for clarity. Green signifies excellent performance, while orange indicates weakened performance, demanding additional attention. Validators marked in red have consistently exhibited poor performance and, therefore, run a high risk of forced unstaking.
Growing Count of Validators with 0% Fees
Among the 105 Polygon validators, 34 have 0% validator fees, including Everstake. This marks a 21.4% increase in their ranks compared to Q2 2023.
These validators play a crucial role in enabling maximum staking rewards for 14,192 delegators who have staked 1.27B MATIC, which constitutes 37% of the network's total stake. Economically, the unique reward system in Polygon enables validators to earn from network commissions and block production, so they can easily afford to eliminate validator fees for their users. This model makes Polygon staking more attractive to delegators and helps increase the total stake, so it ends up being a win-win situation.
Checkpoint Submission
A checkpoint is a snapshot of Polygon blocks committed to Ethereum. These snapshots represent the state of the Bor chain. Prior to validation and submission on Ethereum contracts, these checkpoints undergo attestation by ⅔+ of the validator set.
Over the year, Polygon validators submitted 14,555 checkpoints, producing them every 36 minutes on average. In October 2023, Polygon validators achieved a record-breaking monthly rate of checkpoint submission at 1,147.
Fluctuations in Price and the Resilience of MATIC Staking
The analysis of the total stake indicator to the $MATIC token price in 2023 unveils two noteworthy correlations. Initially, starting in Q1, both the token price and network stake exhibited a positive trend, which suggested the ecosystem was thriving. Both the market value and the level of participation were on the rise.
Still, Q3 2023 saw a substantial shift where the token's price decline not only never caused the stake ratio to drop but surprisingly fuelled its increase. This may suggest that delegators’ confidence in the ecosystem does not rely on the token price as its core metric and, therefore, offers a positive outlook for the network's staking ecosystem amid market challenges.
Future Prospects
The Polygon 2.0 ecosystem is poised to attract more developers and projects seeking efficient and scalable solutions. In the ever-evolving blockchain and crypto space, Polygon's adaptability and commitment to innovation make it a key player in developing decentralized technologies for universal use, as testified by its growing community and partnerships with industry leaders and institutional players across the globe.
For those reasons, the outlook for Polygon in 2024 remains positive. The comprehensive roadmap for revamping it into Polygon 2.0 instills confidence in users and delegators, and certain expected events in crypto, such as the upcoming halving in Bitcoin mining rewards, are likely to ignite greater public interest in the already-thriving ecosystem.
