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The Next Ethereum Killer
The Blockchain Sector @ 2023-03-29
A lot of my time is spent researching new and emerging technology which recently has included zkEVM layer 2 rollups. This has led me down a path of speculation which concluded with me allocating ~2% of my digital asset portfolio to $MATIC the native token of Polygon. Here is why…
Polygon is currently an alternate layer 1 blockchain. On March 27th, they launched a ZK rollup Layer 2 that utilizes the Ethereum mainnet as a parent chain.
zkEVM Layer 2 Rollups
From a user experience perspective this will look just like any other alternate L1. You can connect to it through Metamask and transact within decentralized applications in the same way as normal.
Arbitrum and Optimism are optimistic rollups, both of which have gained a lot of traction over alternative layer 1s in the last year. However most developers agree that the future of rollups on Ethereum will be built on ZK technology, which is more efficient and removes the need for a waiting period on withdrawals.
According to Ethereum researcher Justin Drake, ZK rollups have additional “superpowers” such as the potential to create and shared data storage and liquidity pools with the parent chain and other zkRollups.
Currently, there are five different teams working on zkRollups that I know about:
There’s a more in depth analysis of these projects and the tech behind zero knowledge rollups here: https://jamesbachini.com/zkevm/
What happens to Polygon Mainnet?
Ethereum is a trustless and permissionless network and anyone can launch a rollup. However is it possible the internal privacy & scaling team or another party releases a native L2? If so there is a chance that third-parties like Polygon and zkSync will be threatened in the same way that alternative L1s have lost traction to L2s in the last year (BNBchain > Arbitrum).
Potentially, Polygon is such a large project that it would make sense for them to create a completely alternate ecosystem with Polygon mainnet being the parent L1 and its ZK rollup technology operating underneath that. This would still be EVM compatible and would provide an alternative layer with lower fees and an alternative to Ethereum for developers.
This is completely based on speculation, and there's no inside information I have that this is currently planned.
In the same way that Ethereum can become a chain of chains and ETH holders benefit from the transactional proofs on mainnet, Polygon L1 can become a chain of their zkEVM L2’s and MATIC holders can benefit… if there are users, devs and reliable infrastructure.
If a native ZK rollup launches on Ethereum, or if for any other reason Polygon separated itself, they would be in a good position to become the second largest smart contract platform. An alternative for developers, as we can use the same Solidity code, transaction costs will be cheaper, and they might be able to implement unique features and roll out updates faster than Ethereum.
Polygon already has numerous partnerships, including with OpenSea and many DeFi protocols such as Aave, Curve & Uniswap. They have also been burning money like no other team in crypto, with roughly $200 million left from the $450 million raised in a round led by Sequoia in 2022.
There is also a strong developer community. Polygon has been one of the main sponsors for ETHGlobal and whenever there's an Ethereum conference, the Polygon team is normally not far behind. They aren't seen as competitors currently and are perhaps more widely accepted than any other alternative layer 1 blockchain within the Ethereum community.
The Next Ethereum Competitor
In every bull market there is an "Ethereum killer". First we had EOS, then Solana but in the next market cycle, perhaps we'll see new and exciting technology emerge with novel and compelling reasons for developers to build on it. If this doesn't happen and I’m not seeing anything gain traction at this stage, Polygon might be the main competitor to Ethereum in a few years time.
I can’t see it seriously challenging Ethereum unless something goes badly wrong or there’s some kind of regulatory event. Just being number two would be a fine achievement and creating a viable alternative for developers is valuable in itself.
For this reason I’ve allocated ~2% of my digital asset portfolio to the native MATIC token to have exposure if this scenario does play out. It’s not a high conviction play but even if it never becomes a viable competitor, I expect MATIC to have a higher beta to BTC & ETH over the next part of the market cycle.
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