Polygon Staking Report: MATIC Semi-Annual Analysis 2024 | Everstake

The first half of 2024 has been crucial for Polygon, marked by significant advancements across various facets of its network. This period saw substantial growth in user adoption, transaction volumes, staking activities, and governance enhancements. This report examines Polygon's progress and achievements during this period and offers insights into its progress as part of the broader blockchain ecosystem.

Key Findings and Takeaways

• AggLayer Development: Advancements made towards launching an aggregated blockchain network for seamless state and liquidity sharing.
• Polygon CDK Adoption: Continued support for projects like API3 and Arianee in blockchain creation and migration using Polygon CDK.
• Type 1 Prover Innovation: Progress in developing technology to transition EVM chains to ZK L2, enhancing scalability and reducing costs.
• Governance Hub Progress: Steps taken towards establishing decentralized governance for transparency and community participation.
• zkPoS Phase 1 Proposal: Discussions initiated for integrating Polygon PoS with AggLayer to improve network consensus and efficiency.
• Pessimistic Proofs Development: Advancements made towards ensuring secure chain connections and trustless interoperability within AggLayer.
• Polygon experienced a remarkable 180% growth in daily active addresses, peaking at 1.64 million in June 2024.
• The network added 49.8 million new unique addresses in the first half of 2024, which indicates steady user base expansion.
• Q2 2024 saw significant growth in transaction volume.
• Delegator numbers grew by 18.1% in the first half of 2024.
• Polygon staking increased by 7.25%, reaching 3.7 billion MATIC by Q2 2024.
• 35 validators operate with a 0% commission, which is preferred by 59% of delegators and ensures competitive staking rewards.
• No validators were removed for poor performance, ensuring ongoing network reliability and stability.

This is the fourth report in the series, and Everstake intends to publish regular updates on the Polygon staking ecosystem henceforth. We recommend reading this one together with our previous reports for a more comprehensive understanding of the ecosystem’s dynamics. 

This report is free to use. If it is referenced elsewhere or materials therefrom are used, this is only allowed with a direct link to this report and provided Everstake is mentioned.

For any inquiries, contact our Blockchain Manager on X.

Definitions

Here’s a concise overview of the key terms from the report:

Stake (Voting Power): The number of staked MATIC tokens.

Validators: Node operators in the Polygon network responsible for creating new blocks and validating transactions.

Delegators: MATIC holders who delegate their tokens to validators to participate in staking and earn rewards.

APR: The annual percentage return offered as a staking reward.

Staked Ratio: The percentage of a cryptocurrency’s total supply that is staked in PoS or DPoS networks.

The New Era of Polygon as the Value Layer of the Internet

Polygon initially was a suite of protocols designed to tackle Ethereum's scalability challenges. By leveraging a distinct blockchain compatible with Ethereum, Polygon handles transactions separately and subsequently integrates them back into the main Ethereum blockchain, thus alleviating congestion. This process accelerates transaction times and drastically lowers costs to a fraction of a cent.

Typically, the very term "Polygon" is associated with the Polygon Proof-of-Stake (PoS) sidechain, mostly due to its widespread use and the extended community of users and developers that support it. That said, recent advancements—particularly in zero-knowledge technology spearheaded by Polygon Labs and contributions from the community—have expanded what Polygon encompasses.

The state of Polygon today is best described by the concept of Aggregation.

The aggregated blockchain network, as envisioned by Polygon Labs, is an elastically scalable collection of sovereign chains that share state and liquidity. It synthesizes the benefits of both monolithic and modular blockchain designs and enables the creation of new chains as needed, as well as the seamless interoperability of existing ones within a unified framework. This composability empowers developers to engage users across all linked protocols instead of being confined to a single chain.

The result is an almost unlimited capacity, superior network effects, faster transaction finality, and enhanced security compared to other blockchain architectures.

The Polygon team describes it as a horizontally scalable multichain network that allows shared liquidity and state across interconnected sovereign chains.

Network Development: Key Events of the First Half of 2024 

In the summer of 2023, a series of community proposals known as Polygon 2.0 reimagined almost every aspect of the Polygon networks, paving the way for an aggregated blockchain network. Over the past half of the year, developers and key community members have been building upon this foundation.

AggLayer

The Aggregation Layer, or AggLayer, represents the first aggregated blockchain network, with its initial components going live in February 2024.

This development is arguably one of the most significant achievements of the past year. In essence, an aggregated approach merges the benefits of a modular, multichain ecosystem with the stability of settling on Ethereum. The AggLayer allows for shared state and liquidity across interconnected chains and ensures a seamless single-chain experience even as users move between various chains and execution environments. There are three strategic goals behind its concept.

• Asset Fungibility: Through a unified bridge, Layer 1 assets can be securely locked and utilized across multiple chains, eliminating the hassle of withdrawals and bridging services.
• Trustlessness: Users do not need to make any additional trust assumptions. In terms of cross-chain interoperability, this ensures security that matches or exceeds that of the underlying domains.
• Low-Latency Transactions and Messaging: The AggLayer facilitates coordination and operation among chains at lower latency than Ethereum, which enables swift transactions between chains.

AggLayer is a credibly neutral service designed to accept proofs from connected chains, verify the consistency of these chain states, aggregate the proofs, and settle them on Ethereum. Notably, the barrier to entry for using AggLayer is set to be low. 

Polygon CDK

Numerous announcements concerning the Polygon CDK (Chain Development Kit) have been made over the past six months, making it challenging to keep track of all the developments. 

Polygon CDK simplifies the process for developers to design and launch chains on Ethereum or migrate existing ones. It provides a modular and sovereign approach to chain design, granting developers the flexibility to customize a chain’s architecture to meet specific needs. With a suite of supported, open-source components, Polygon CDK empowers developers to craft complex blockchain solutions tailored to their unique requirements.

Key events over the past six months for projects based on Polygon CDK include:

• Back in January, API3 revealed the OEV Network, a ZK-rollup engineered to capture all oracle extractable value, powered by Polygon CDK.
• In February, Arianee revealed plans to tap into Polygon CDK for the launch of an L2 platform, aiming to tokenize digital product passports on a large scale.
• Swell launched a layer-2 restaking rollup using Polygon CDK back in March.
• Also in March, Astar Network launched Astar zkEVM, a high-performing ZK-powered Layer 2 rollup constructed using Polygon CDK and serving as the inaugural chain fully incorporated into the AggLayer.
• Libre was similarly launched in March, providing major financial institutions with compliance-ensuring and smooth pathways to tokenize assets. Developed as a collaboration between WebN and Laser Digital, Libre is an L2 chain powered by Polygon CDK, facilitating the straightforward and regulatory-compliant issuance of tokenized assets by institutions.
• In April, OKX introduced the X Layer mainnet, a ZK-powered Layer 2 developed with Polygon CDK and integrated with the AggLayer. This launch brings over 50 million OKX users into a neutral, decentralized, and horizontally scalable multichain environment within AggLayer.
• Moonveil Studio, an emerging Web3 gaming company dedicated to crafting top-tier games, unveiled intentions to deploy a specialized chain leveraging Polygon CDK.

That said, the Polygon CDK ecosystem is constantly growing. All existing Polygon technologies, including the open-source Type 1 ZKEVM prover and the foundational technology of Polygon zkEVM, will be integrated into Polygon CDK.

Upgrade Every EVM Chain to ZK: the Type 1 Prover 

February marked the release of Polygon Labs' next-gen Polygon zkEVM prover, the Type 1. This advancement enables any existing EVM chain to transition into a ZK L2 and seamlessly connect to the entire Polygon ecosystem through the Aggregation Layer.

The groundbreaking Type 1 prover's underlying technology will drive proving tech across Polygon protocols, promising reduced costs, lower latency, and an enhanced user experience for all chains utilizing Polygon CDK.

This achievement was a collaborative effort led by Polygon Labs and Toposware, a leading ZK team. Together, they reached a significant milestone: generating ZK proofs for live Ethereum blocks, with transaction costs averaging between $0.002 and $0.003.

Governance Hub, Community Treasury, and Community Grants Program

Over the past year, the Polygon community has actively shaped a decentralized governance framework, focusing on three key areas:

• Protocol Governance: This pillar oversees upgrades to Polygon protocols using the PIP framework and ecosystem consensus, akin to Ethereum's protocol governance.
• System Smart Contract (SSC) Governance: Facilitating upgrades to L1 smart contracts essential for Polygon protocols, leveraging the PIP framework and the Polygon Protocol Council, a community-controlled body introduced for scalable and decentralized governance.
• Community Treasury Governance: A Community Treasury has been established, unlocking 1B POL over 10 years (~100M POL annually), dedicated to builders and innovation. Season 01 of the Community Grants Program, managed by the neutral Community Treasury Board, will allocate 35M MATIC to Polygon-based projects.

The upcoming Polygon Gov Hub will serve as a centralized governance interface, promoting transparency, participation, staker voting, and a delegate program for community oversight in protocol development.

zkPoS Phase 1 is Here

On June 12, the Polygon community began discussing a proposal to integrate Polygon PoS with the AggLayer. This upgrade promises two main benefits: enhanced network effects and an improved bridge experience. It will use a ZK verifier to validate the network's consensus mechanism and establish finality for settling to the AggLayer.

The upgrade does not initially necessitate significant client changes to Bor or Heimdall. If the community consensus is positive, a formal PIP will follow, with the main dependency being the completion of a production-ready implementation of the pessimistic proof expected in mid-summer. If all goes well, connecting Polygon PoS to the AggLayer could be achieved before the end of 2024.

Pessimistic Proofs

AggLayer will ultimately be a decentralized protocol that scales blockchains by unifying liquidity, users, and state through a unified bridge. A pessimistic proof provides cryptographic guarantees, allowing chains to connect securely without extra trust assumptions. This proof constantly verifies that no chains falsify deposit information, ensuring that even compromised chains cannot drain funds from others.

In practice, AggLayer enables direct asset transfers between chains without the need for an L1 intermediary. The earliest iteration will prioritize safety over speed, but it is designed to support faster interoperability than Ethereum’s finality. To achieve this, AggLayer will use SP1 by Succinct Labs, a general-purpose zkVM that supports standard Rust and utilizes Plonky3, to generate the pessimistic proof, a novel zero-knowledge proof ensuring security in the aggregated network.

Polygon PoS Chain Achieves 180% Growth in Daily Active Addresses

The first half of 2024 has seen remarkable growth for the Polygon PoS chain, with a significant increase in daily active addresses.

A notable achievement during this period was Polygon's sustained presence with over one million daily active addresses for 103 consecutive days from March 20 to the end of Q2.

From January to June 2024, daily active addresses surged by over 180%. June 2024 became the most significant month in the project's history in terms of daily active addresses, with the average monthly indicator reaching 1.35 million. The peak day on June 22, 2024, saw 1.64 million active addresses.

A significant portion of this growth came from the mobile shooting game Matr1x, which accounted for around 350,000 daily active users over the past three months, representing 23% of daily active users on average. 

The third largest segment of users came from Tether, with an average of 42,600 daily active addresses. In Q2, Polygon saw a substantial surge in stablecoin market capitalization, reaching $1.5 billion, which reflects a 19% increase quarter-over-quarter. Tether became the dominant stablecoin on Polygon, with its market cap growing by an impressive 29% QoQ to $792 million, comprising 53% of the network's total stablecoin market cap. During these six months, wallet-to-wallet transfers averaged 145,100 daily active addresses, maintaining 27% of the total activity. 

Steady Growth in Unique Addresses

In the first half of 2024, Polygon PoS saw significant growth in new unique addresses, marking further expansion of its user base. The network added 49,777,604 new addresses in H1 2024, a 12% increase from 392,325,048 at the end of 2023 to 442,102,652 by mid-2024.

Although the pace of growth slowed down in comparison to the explosive April 2023, when major announcements led to a surge of 23,974,014 new addresses, the network still averaged 8.3 million new addresses per month in H1 2024. In Q1 2024, the network added 20,948,346 new addresses, followed by 28,829,258 in Q2 2024, which is indicative of sustained interest.

Transaction Data Shows Steady Growth Despite Quarterly Fluctuations

In Q2 2024, Polygon's transaction data revealed a steady growth trend despite some quarterly fluctuations. The total transactions for Q2 2024 reached 370,426,647, showing a 3.26% increase from Q1 2024's 358,746,586. This follows a significant drop of 13.17% in Q1 2024 from Q4 2023, which had seen a peak of 413,173,003 transactions, driven by exceptional activity during that quarter.

Despite these variations, the average transactions per quarter remained at a high level, with Q2 2024 averaging 4,071,333.79 transactions, a slight rise from Q1's 3,941,315.04.

Growth in Polygon Delegator Numbers

In the first half of 2024, Polygon's staking ecosystem experienced substantial growth, particularly among delegators. Their numbers increased by 18.1%, marking the largest half-yearly increase in the last two years. This surge brought in 4,800 new delegators.

Among the largest validators, Everstake stands out with 19% of all delegators, followed by Coinbase at 8% and Allnodes at 6%.

Polygon Staking Sees 7.25% Growth

In the first half of 2024, Polygon's staking activity demonstrated significant growth, with the total stake increasing to 3.7 billion MATIC by Q2 2024—a 7.25% increase over the six-month period. Starting the year at 3.61 billion MATIC in Q1 2024, an additional 160 million MATIC was added in Q2 2024, marking a 4.64% quarter-over-quarter growth. This positive momentum continued with another 90 million MATIC added in Q2 2024, representing a 2.49% increase QoQ.

During this period, MATIC staking showed resilience, fluctuating between 3.45 billion and 3.7 billion in total stake. The highest point of 3.7 billion MATIC was reached in Q2 2024 with a 2.49% quarter-over-quarter growth and a 7.25% half-over-half increase. Earlier in the year, Q1 2023 saw a notable quarter-over-quarter growth of 7.62%, while Q4 2023 experienced a decrease of -3.36%.

Validator Fees

Out of the 105 validators in the active set, 35 operate with 0% commission, which marks a 3% increase compared to late 2023. These validators service 17,272 delegators who have staked 1.28 billion MATIC, accounting for 35% of the network's total stake. Notably, 59% of Polygon delegators prefer validators offering 0% commission. 

Currently, 33% of all network validators operate with 0% commission. The second largest segment, accounting for 30% of the lot, charges a 5% fee, and only 19% of delegates opt for their services.

Validator Performance

Introduced in early 2023, the Validator Performance Framework now features the health status feature on the Polygon staking dashboard, which employs color coding for clarity. Green signifies excellent performance, while orange indicates weakened performance requiring further attention. Validators marked in red consistently demonstrate poor performance and face a heightened risk of forced unstaking.

The Validator Performance Framework aims to clearly display critical performance information, updating a validator's status with each 700 checkpoints. If a validator's performance drops below the benchmark, they receive a Grace Period 1 notice and must improve within 700 checkpoints. Failure to do so results in a Grace Period 2 notice and a final 700 checkpoints to improve. Continued underperformance leads to a Final Notice and forced exit. If performance improves, a Release Notice restores their status to green. 

This half-year was notably successful, as no validators were removed from the set due to insufficient performance.

Among the validators with the highest number of delegators and the highest stakeholder trust, those in the top 10 demonstrated exceptional performance. At the time of writing, only one validator, steak.fish, was offline. The remaining nine validators maintained performance scores between 97.75% and 100% across all three key metrics: signed checkpoints, signed Heimdall blocks, and produced Bor blocks. Meria, Everstake, Abyss Finance, Prometheus Pool, and StakePool stood out for their consistently high performance.

Future Prospects

The third quarter of 2024 marks the beginning of a critical period for Polygon as it continues to roll out Polygon 2.0 upgrades, including the mainnet migration scheduled for August 2024. Proposal PIP-42, which offers to shift PoS staking from MATIC to POL, ensuring smooth integration without disrupting existing functionalities, has already been introduced.

Another essential initiative in progress involves integrating a zero-knowledge verifier to validate Polygon PoS consensus mechanisms and support settlements on the AggLayer. This move will boost network security and enhance Polygon's role in facilitating seamless interoperability across blockchain ecosystems. As a result, the overall prospects for the Polygon ecosystem look very promising, if not bright.