Polygon’s focus on building L2 infrastructure outweighs MATIC’s 50% drop from ATH

Polygon's focus on building L2 infrastructure outweighs MATIC's 50% drop from ATH

After a devastating 50% correction between Dec. 25 and Jan. 25, Polygon (MATIC) is struggling to hold the $1.40 support. While some say this top 15 coin has simply adjusted after a 16,200% gain in 2021, others point to the growth of competing scaling solutions.

MATIC/USD token on FTX. Source: Trading View

Either way, MATIC remains 50.8% below its all-time high with a market capitalization of $11 billion. Currently, the market capitalization of Terra (LUNA) stands at $37 billion, Solana (SOL) is over $26 billion, and Avalanche (AVAX) has a market value of $19 billion.

On a positive note, Polygon raised $450 million on February 7, and the funding round was backed by some of blockchain’s most prominent venture capital funds, including Sequoia Capital.

Polygon offers scaling and infrastructure support for decentralized applications (DApps) based on the Ethereum Virtual Machine (EVM). Also, it is not plagued by the high transaction fees and network congestion that plague the Ethereum network.

However, as layer 1 proof-of-stake networks have emerged that offer low-cost smart contract capabilities, this has dramatically increased competition for Ethereum network decentralized finance (DeFi), minting non-fungible tokens. , markets, crypto games, gambling and social apps.

By comparison, Terra’s total locked value increased by 340% between July and December 2021, reaching $12.6 billion. Similarly, Avalanche’s smart contract deposits grew from $185 million to $11.11 billion over the same period.

Use of Polygon’s scaling solution is down

Polygon’s primary DApp metric began showing weakness in August 2021 after the network’s TVL fell below 4 billion MATIC.

Total value of locked polygon, MATIC. Source: DéfiLlama

The graph above shows how Polygon’s DApp deposits peaked at 7.4 billion MATIC in July 2021 and then declined significantly over the following two months. In dollars, the current TVL of $3.5 billion is the lowest number since May 2021. These figures represent less than 5% of the total TVL (excluding Ethereum), according to to DefiLlama data.

Another bright spot is that on March 9, Ankr, a multi-chain toolkit for blockchain infrastructure, enabled a symbolic bridge between Ethereum and Polygon. The first version will send and store the aMATICb liquid staking token. This allows users to earn additional layers of rewards on DeFi platforms.

To confirm whether the TVL drop in Polygon is troublesome, it is worth analyzing the DApp usage metrics. Some DApps, such as games and collectibles, do not require large deposits, so the TVL metric is irrelevant in these cases.

Polygon DApps 30-day on-chain data. Source: DappRadar

As shown by DappRadar, on March 10, the number of Polygon network addresses interacting with decentralized applications increased by 5% compared to the previous month. Even though Polygon’s TVL has been the hardest hit compared to similar smart contract platforms, there is solid network utilization in the gaming industry, as measured by Crazy Defense Heroes’ 199,260 active addresses at course of the last 30 days.

On November 16, Polygon launched its Miden virtual machine powered by zk-STARK, a zero-knowledge scalable transparent knowledge ARgument. Polygon has also committed over $1 billion to develop complex DeFi applications that require redacted sensitive information about digitized assets, reducing their size for quick verification by blockchain participants.

The data above suggests that Polygon is holding its own against competing chains, and those holders might not be too worried about MATIC’s 50% price correction. Polygon’s ecosystem continues to thrive, and the fact that it offers highly demanded Layer 2 scaling solutions for multiple industries can be seen as a bullish factor.

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