A review of Polygon's development: Will the former "glory" be reappeared by Agglayer and CDK?

Authored by: Saurabh Deshpande and Sidd Harth, Decentralised.co

Compiled by: Yangz, Techub News

In March 2020, the market experienced an unprecedented black swan event. The financial industry was impacted by the epidemic, and the Federal Reserve issued a large amount of US dollars to stimulate the economy. In this environment, Bitcoin, Ethereum, and some other tokens experienced the most glorious moments of their lives. But in addition to price, a revolutionary technological change has transformed the way Ethereum scales.

In 2020, when Ethereum had yet to solve its scalability issues, Polygon (then known as Matic Network) was introduced as an application scaling solution using the Ethereum Virtual Machine (EVM). In 2020 and early 2021, Polygon was one of the very few solutions that could provide the same quality of applications (such as Aave) on Ethereum at extremely low cost, standing out among numerous Ethereum scaling solutions.

From 2021 to 2023, the competition for Ethereum scalability has intensified. During this period, Optimistic Rollup (OR) launched its product ahead of ZK Rollup (ZKR). Compared to ZKR, OR has lower design complexity. It is generally believed that the high-performance ZKR, which is fully compatible with EVM, will take several years to emerge. Although OR is typically considered an intermediate scaling solution, it has already accumulated a large number of users and capital. In contrast, ZKR is relatively inferior. This can be seen from the TVL of the two solutions. As of April 11th, the TVL of OR is about $35 billion, while the TVL of ZKR is about $3.7 billion.

When OR and new narrative styles are popular with users, Polygon, as one of the first solutions to operate as a sidechain, focuses on ZK solutions and actively gives up its position to OR. The launch of ZKR takes time, naturally, incentive measures are also delayed. By the time ZKR is truly launched, OR has already established a foothold and successfully attracted users’ attention. Coupled with the fact that there is almost no difference in user experience between ZKR and OR after its launch, attracting user attention has become an extremely difficult battle for ZKR.

Polygon Labs has a variety of solutions, including PoS chains, various upcoming ZKR implementation plans, and development toolkits. From an external perspective, Polygon’s actions can be confusing, as they don’t always do the most appropriate things at the right time and seem to be trying everything now. However, after a deeper understanding, I realize the importance of these fragmented combinations. This article will focus on the evolution of the Polygon ecosystem and the development prospects for the next few months.

The need for speed

No one will forget the Crypto Kitties era, which brought a sense of community to Ethereum by allowing the breeding and trading of unique digital cats. In December 2017, some cats were sold for over 100,000 USD, and the transactions accounted for more than 10% of the total Gas consumption on the Ethereum network. It gained unprecedented popularity, even attracting coverage from the BBC. However, this event also highlighted the limitations of Ethereum at the time, as regular users simply couldn’t afford the high Gas fees in the face of high prices and demand.

Obviously, Ethereum in 2017 needs to undergo a large-scale expansion and reconstruction. When considering this issue, a natural solution that arises is: if a chain can process 12 transactions per second, can we split this chain into multiple independent chains? If there are 100 chains, and each can process 12 transactions per second, then there can be 1200 transactions per second. With the increase of chains, the possibility of expansion will also increase.

This is the broad concept of “sharding” of the base chain. Sharding is basically a chain that runs in parallel with other small-scale chains. However, making these independent shards part of Ethereum by ensuring seamless interoperability is as difficult as scaling itself. For example, how these chains interact with each other is important when users need to execute transactions involving applications on different shards. This means splitting the validator set into longest sets to validate different chains.

Although sharding is the ultimate goal, Ethereum needs to take multiple necessary intermediate steps during this period to act as building blocks for the sharding architecture. These intermediate steps include state channels, Plasma, etc.

In addition to sharding, another different approach is also beginning to take shape. What if we don’t break down the validator set, but instead lighten their computational burden? This is exactly the purpose of Rollup. Rollup does not need to use Ethereum’s resources (Gas) for every transaction, but uses them to publish batch transactions. Therefore, the computation required to change the state (treating Ethereum’s state as the balance of each account, smart contracts, and externally owned accounts) is carried out on a different layer from Ethereum, saving Ethereum’s resources. With Rollup, Ethereum no longer directly interacts with millions of consumers, but deals with a few Rollups interacting with tens of millions of users. Rollup helps Ethereum shift from B2C to B2B.

Of course, this is not easy. How do users know if the person executing the computation is honest when Ethereum validators no longer perform computations? When using Ethereum, we can indeed run our own nodes to check if the validators correctly execute our transactions, but we choose not to do so. In the end, we choose to trust Ethereum validators.

When you transfer assets or exchange assets, validators will change the state of Ethereum, such as adding and subtracting account balances. When this calculation is moved off-chain, users are basically trusting the people operating at this layer. Now, if we say these layers are just an extension of Ethereum, then users should not be forced to trust anyone other than Ethereum validators. The layer is responsible for proving in some way that what they are doing complies with Ethereum’s rules.

How different Rollups execute calculations and prove to Ethereum largely determines their type. OR provides Ethereum with its computation results and the data needed to replay transactions (the results they publish on Ethereum). Before anyone questions the execution, any results submitted by OR are considered correct and are therefore called optimistic. Validators typically have seven days to question the results. It should be noted that as of June 2024, except for Optimism, other ORs have not implemented anti-fraud features. Optimism has anti-fraud features in the first phase, so if the anti-fraud system fails for any reason, the safety committee can intervene.

Another major category is ZKR. Zero-knowledge technology allows us to prove anything without revealing the details of the content to be proven. ZKR does not require publishing all data for validators to replay all transactions, but instead submits an execution proof to Ethereum.

Ethereum - Anchor for L2 or scaling layer

Today’s Ethereum has grown along with the development of protocols and applications. During this process, some projects have adapted to the development, while others have not kept up. The story of Matic Network (now Polygon) illustrates this point very well. Thanks to the development of Ethereum, Polygon is also thriving.

Since the launch of Ethereum in 2015, there has been a significant shift in the landscape of cryptocurrency and blockchain. Ethereum’s expansion plan took a major turn at the end of 2020 when Vitalik wrote an article centered around Rollup. Ethereum’s development can be divided into two eras with Rollup as the boundary. If Ethereum is the anchor, then L2s must follow suit.

It is obvious that Ethereum needs to scale massively to become a world computer. Before understanding the evolution of Ethereum scaling, we should re-examine the general meaning of scaling. Scalability means extending the security guarantees of Ethereum. Regardless of the method we adopt, we should rely on the security of Ethereum to some extent. In other words, Ethereum L1 should have the final decision-making power over the state of the scaling layer.

Before Ethereum decided to support Rollup, several developers had proposed other scaling solutions such as state channels, Plasma, sidechains, and sharding.

Among them, Plasma is similar to a sidechain. Plasma is a chain that can independently execute transactions and regularly publish compressed data to Ethereum. However, this brings about data availability (DA) issues. Only Plasma operators can obtain all historical data of Plasma, and Ethereum full nodes only know about the compressed data. Therefore, users must trust the operators to maintain data availability. In other words, the security of Plasma depends on the security of the root chain (Ethereum). Fraud proofs and challenges are also resolved according to the rules of the root chain.

Data availability solutions typically separate consensus data from transaction data. As the scale of the chain expands, storing and processing state becomes a challenge. The DA solution addresses scalability issues by introducing a separation between the consensus layer and the data layer. The consensus layer handles the ordering and integrity of transactions, while the data layer stores transaction data and state updates.

Sidechains are independent chains with their own consensus and validator set. They regularly publish data on Ethereum. The main difference from Plasma is that they are based on a different consensus with independent validator sets. Users must trust the sidechain validators to maintain the integrity of their transactions.

Compared with Plasma and sidechains, OR has improved in the following aspects:

1. First, OR avoids data availability issues by publishing all data on Ethereum.
2. Secondly, users don’t need to extend to larger trust assumptions; that is, they don’t have to trust a new set of operators or validators.

This is why Rollups are considered a superior form of expansion. It can be said that they are an improved version of Plasma.

The state channel is a solution similar to the Bitcoin Lightning Network.

To give a simple analogy, Sid and Joel each operate their own sandwich and coffee shops, which are located next to each other. Due to the complementary nature of these two products, they have decided to cross-sell and merge their menus. When a customer orders a sandwich at Joel’s shop, he only needs to give the order to Sid. Furthermore, the customer only pays at the dining place. Sid and Joel will keep corresponding records, but they will not settle after each order, but rather at the end of the day.

The bills opened by both parties are like channels between two nodes or accounts. At a high level, two users or applications can open an off-chain channel, conduct transactions, and settle on-chain when the channel is closed. This method requires opening and closing multiple channels between users (which are on-chain transactions) and is difficult to scale. As of June 2024, the Lightning Network’s capacity is only about 5K BTC, meaning it cannot handle round-trip transactions of more than 5K BTC at the same time.

The Four Eras of Polygon Development

As one of the earliest expansion solutions to launch the mainnet, Polygon’s development has gone through four eras, both technically and ecologically:

1. Matic Network
2. Polygon Extension
3. Embrace ZK
4. Aggregate Everything

Matic Network

Matic Network is a combination of Plasma and sidechain methods. Validators stake MATIC tokens to validate transactions and ensure the security of the chain. As an additional security measure, the state snapshots (i.e. checkpoints) of the chain will be submitted to Ethereum. Therefore, once the checkpoints on Ethereum are finally confirmed, the state will be frozen on the Matic Network. After that, the blocks will not be able to be contested and reorganized.

In 2021, Matic Network was renamed to Polygon, but this is not just a change in name. Matic Network expanded Ethereum in a single-chain manner, while Polygon shifted towards a multi-chain ecosystem. In order to achieve the vision of expanding Ethereum from multiple perspectives, Polygon has launched a Software Development Kit (SDK) to facilitate developers in porting their applications to Polygon.

The so-called SDK can provide building modules for larger-scale software (in this case, different types of chains). The Polygon SDK provides tools for building two types of chains, including independent chains with their own validator sets, as well as chains that rely on Ethereum for security (L2s).

Sidechains and enterprise chains that need more control over operations (who can participate, who can run nodes, etc.) will choose the first option. In contrast, young projects lacking resources or having no opinions on the security and consensus rules of Ethereum will choose the second option.

In April 2021, after Aave deployed on Polygon for several months, Polygon’s TVL surged from about $150 million to nearly $10 billion. At that time, Polygon dominated in most chains in terms of active users and trading volume. Even by June 2024, Polygon PoS still dominates in terms of daily active users. (This data should be treated cautiously as we cannot know the true number of active users. Data providers typically track active addresses, but one address does not necessarily represent one user)

Embrace ZK

With the development and growth of the Polygon PoS chain, Polygon Labs has explored more methods to expand Ethereum.

In 2021, when ZKR was still in the development stage, Polygon Labs allocated $1 billion for ZK development. They acquired Hermez Network, Miden, and Mir Protocol. Although these teams are all in the ZK category, they each have their own specific purposes. Hermez focuses on building real-time zkEVM, while Mir focuses on building industry-leading proof technology to create a zkVM Rollup with client proof capabilities.

While people generally believe that ZK technology will take another three to five years to mature and OR is just around the corner (although without fraud proof), Polygon Labs is fully committed to developing ZK. This inevitably raises the question: why does Polygon Labs choose to do something that takes longer instead of deploying the OR solution first and then researching ZK?

There are two answers:

1. In terms of scalability and security, OR will be a more advanced solution than Polygon PoS.
2. But everyone agrees that ZKR is the ultimate solution to defeat OR.

Yes, as long as OR has fraud proof, its security guarantee will be better than sidechains (such as Polygon PoS), but for end users, the cost will not change much. It is worth noting that, except for Optimism, no other OR has launched fraud proof. Optimism will start testing fraud proof in March 2024. Therefore, it will take some time for all OR to enable fraud proof on their respective mainnets.

If we consider from the perspective of barbell strategy, risk is usually allocated through high-risk and low-risk instruments in the investment portfolio, and this is Polygon’s strategy.

Considering the difference between OR and ZKR, and the fact that the former must submit all transaction data on Ethereum, with the increase of OR transaction volume, the data published on Ethereum almost grows linearly. In contrast, the size of ZK proof grows almost linearly. Therefore, with the increase of transaction volume, the efficiency of ZKR is significantly higher than that of OR.

Only a few hundred people may be able to fully understand ZK technology and create an infrastructure layer capable of handling trillions of dollars. ZK technology takes time to mature. Acquiring a team researching ZK can bring Polygon Labs a rare tactical advantage in the industry.

Rollups and Trains

zkEVM is one of the most important technologies for Polygon. Why is that, you may ask?

Assuming the older generation of blockchains is like old-fashioned steam trains, they are slow, have small capacity, and are expensive. However, with years of experience, they have established rail networks across many fields. As one of the most widely adopted standards, we can think of the EVM as such a rail network.

OR similar to an improved version of this type of train, using the same track as the early train sets, but with speeds 10 to 100 times faster. However, this is not enough. We need to increase the speed and capacity by several orders of magnitude to ensure fast and affordable travel. The goal of ZK Rollup is to achieve this. However, the problem is that these train sets cannot use the old track network; they need some modifications. zkEVM allows ZK Rollup to be used with existing EVM tools.

From a security perspective, OR cannot effectively prevent accidents. Their operation is based on the assumption that accidents will not occur. Fraud prevention is like Nolan’s movies. They cannot prevent accidents from happening, but they can make the system go back in time and solve the problem before the accident occurs. On the other hand, ZK technology can prevent accidents.

EVM Equivalent Issue

Let’s take a closer look at zkEVM.

The above metaphor explains why we need to be compatible with EVM. However, this compatibility is not binary, but a spectrum. The prover is an important component of the ZK mechanism. It can prove that an event has occurred without revealing the facts of the event.

So why zkEVM? SNARK or STARK technology allows for the creation of cryptographic proofs. Both methods can generate proofs that are easy to verify, and these proofs can be used to demonstrate that a transaction has occurred on a particular chain. If we want to scale Ethereum, we can use this technology to prove that Ethereum-like transactions have occurred on a layer. These layers are called Rollups, and ZK technology allows Rollups to compress transaction data by orders of magnitude, thus scaling Ethereum. If the goal is to scale Ethereum, then the goal of zkEVMs is to prove execution in a way that can be verified by the Ethereum execution layer.

When a Rollup is fully equivalent to Ethereum, it can reuse existing Ethereum client and other architectures. Fully equivalent to Ethereum means that Rollup is fully compatible with Ethereum smart contracts and the entire Ethereum ecosystem. For example, the addresses are the same, and wallets such as MetaMask can be used on Rollup.

It is challenging to prove in a way that Ethereum can understand. When designing Ethereum, the friendliness of ZK was not considered. This is why certain parts of Ethereum require a large amount of computation for ZK proofs. This means that the time and cost required to generate these proofs will increase. Therefore, if the proof system must be used as is with Ethereum, it will be cumbersome. On the other hand, the proof system can be relatively lightweight, but it must build its architecture based on Ethereum.

Therefore, different zkEVMs will balance between the usability of existing tools and the cost and difficulty of proof. Vitalik introduced several different types of zkEVMs in a blog post. Here are several different types of zkEVMs. Type 1 is the most compatible but with the worst performance, while Type 4 is the least compatible but with the best performance.

1. Type 1 - These zkEVMs are fully equivalent to Ethereum.
2. Type 2 - Equivalent to EVM, but not identical to Ethereum. This means that Ethereum needs to be slightly modified to make proof generation easier.
3. Type 2.5 - Similar to Type 2, except for the Gas cost. Not every operation has the same difficulty when performing ZK proofs. This type of zkEVM increases the Gas cost for certain operations, so developers should avoid them.
4. Type 3 - This type of zkEVM modifies Ethereum to improve the time of the prover, but sacrifices some equivalence in the process.
5. Type 4 - This method compiles source code written in Solidity or Vyper (Ethereum languages) into another language. This type of validator completely abandons compatibility with Ethereum and is the lightest validator of all types. Its disadvantage is that it is completely different from Ethereum. Everything is different from the address onwards. For example, Starknet requires a different wallet (such as Argent), and even the addresses look different from Ethereum.

Polygon Labs recently released an upgrade, introducing a new era of proof technology using Type 1 validators. Using Type 1 means that any EVM chain, whether newly generated using Polygon CDK or independent L1, can become an equivalent ZK L2 to Ethereum.

AggLayer & Polygon CDK: Aggregating Everything

No EVM chain can bear the load of the entire network, which is why we are turning to L2. Currently, there are multiple L2s on the market, but the number of users and capital have not grown at the same rate. Liquidity, users, and value are fragmented across multiple L2s. In a sense, L1 and L2 form a paradox: the base layer cannot scale, while multiple chains may dilute the scale.

The solution to this paradox is to provide a service that allows assets and information to flow seamlessly between multiple L1 and L2, without rent-seeking or levying extractable fees, and ensuring that these chains retain sovereignty.

AggLayer is designed for this purpose. This solution enables secure and fast cross-chain interoperability, and chains connected to AggLayer can share liquidity and state. Prior to AggLayer, sending assets between different chains either required a trust assumption and wrapping assets with a third-party cross-chain service, or required extracting assets from L2 to Ethereum and then cross-chain to the desired chain, with high costs and poor user experience.

AggLayer eliminates this friction in cross-chain transactions and creates an interoperable network of chains. Currently, L2 can be viewed as different contracts on Ethereum. Transferring funds from one L2 to another involves three independent security zones, namely two L2 contracts and Ethereum.

In the case of cross-chain transfer, the security zone is part of the infrastructure for validating the cross-validator set. The validity check and transaction forwarding occur at these boundaries. The result of different security zones is that when you sign a transaction to transfer assets from one L2 to another L2, Ethereum will be involved in the transfer. The assets will be sent from the source L2 to Ethereum first, and then deposited into the target L2. This involves three different orders or transactions or intentions.

With AggLayer, the whole transfer process can be done with one click. AggLayer has a unified cross-chain contract on Ethereum, which can be connected to any chain. Therefore, Ethereum sees it as one contract, while AggLayer sees many different chains. A ZK proof called ‘pessimistic proof’ will handle each connected chain with suspicion, ensuring the security of the total funds locked on the unified cross-chain bridge. In other words, ‘pessimistic proof’ is a cryptographic security guarantee, meaning that a chain cannot break the entire cross-chain bridge.

With AggLayer, transferring assets from one L2 to another no longer requires Ethereum’s involvement, as all L2s share state and liquidity. The above three types of transactions or intentions are combined into one.

Assuming Sid wants to buy some NFTs on Chain A, but all his assets are on Chain B. So before making the purchase, the cross-chain asset transfer from Chain B to Chain A can be fully abstracted through AggLayer.

The advantages of AggLayer are as follows:

1. Transformed the zero-sum game of liquidity and user dispersion into more cooperative ways between chains.
2. While maintaining sovereignty, each chain can benefit from security and tools without having to issue bonds like early models such as Polkadot.
3. Allow cross-chain interaction with lower latency than Ethereum.
4. Brought substitutability for cross-chain assets, improving user experience. Everything happens in a cross-chain contract, so there is no need to have different versions of wrapped assets.
5. Due to the abstraction of cross-chain, the user experience will be better.

Currently, Rollups and Validiums will independently submit their chain states to Ethereum. AggLayer will aggregate these states and submit all content to Ethereum in the form of a single proof, helping to save protocol gas costs.

Competition in the L2 field is already fierce, with Arbitrum, Optimism, Polygon, Scroll, Starknet, ZKsync, and others competing with each other. Of course, you can also participate in the competition, but considering the scale of the Internet, we are still in the early stages of the cryptocurrency adoption cycle, so finding ways to collaborate is often a better strategy.

Even research based on game theory shows that cooperation is almost always the best way for survival and development. The positive significance of AggLayer lies in its trustworthy neutrality (not biased towards any specific project; any chain can be connected) and unified liquidity and state. Other multi-chain ecosystems charge fees to different chains (and thus also their downstream users), while AggLayer is designed to minimize costs as much as possible, while providing secure, low-latency cross-chain interoperability.

Recently, the introduction of application chains has become a general trend. Aevo, dYdX, and Osmosis are typical representatives of this trend. Regarding this trend, Jon Charbonneau pointed out:

1. Applications require flexibility and sovereignty, so they have launched their own application chains.
2. The application chain has seen growth in users and activities, and hopes to gain more value by allowing applications to be built on its chain.
3. Then, the application chain becomes a general chain.

As Lanre mentioned, the market seems to favor the launch of application chains, which then become universal chains. If this trend is taken to the extreme, only a few universal chains will ultimately remain. While multiple chains can coexist, the more chains there are, the poorer the overall user experience of the cryptocurrency, as liquidity and user retention remain unchanged and shared across these chains.

As we have previously argued, this is because liquidity and users are shared on different quantities of L2, resulting in poor liquidity on many L2. We must find a solution to bring all of this together, and AggLayer is a step in that direction.

There are many reasons why an application has a dedicated block space. For example, when NFT coinage is very hot on the same chain, trading applications should not compete for precious block space. Running liquidation or closing positions should not be affected by other activities on the chain (in terms of fees or throughput). However, if many applications are developing towards application chains, there is also a risk of fragmentation. Therefore, AggLayer integrates these different chains. This is a simple solution that allows gaming chains and DeFi chains to avoid direct competition for block space while achieving cross-chain interoperability.

On the one hand, AggLayer can help unify liquidity between chains, and on the other hand, Polygon CDK can be used to create chains.

Polygon CDK is a collection of constantly evolving open source technologies over the years. It was originally an SDK, then transitioned to a super network and finally formed its current form. Polygon CDK allows developers to build two types of L2: Rollups and Validiums.

The most important feature of Polygon CDK is flexibility. Developers can customize different options for VM, Schema, DA, and Gas Token when building new chains (L2).

• The virtual machine is the environment for executing transactions. The Polygon CDK allows developers to choose different virtual machines, such as zkEVM.
• The mode refers to the choice between Validium or Rollup. The difference between the two lies in the type of data they publish on Ethereum. Rollups publish compressed transaction data on Ethereum, making the Rollup mode more secure. Validiums, on the other hand, publish this data on a separate layer, such as their own DA layer.
• DA is an important component of the expansion, where the consensus layer and the data layer are separated. Full nodes on chains like Ethereum and Bitcoin store all data to independently verify all transactions. Polygon CDK allows chains to build their own custom DA committees or use DA solutions like Celestia.
• Gas token customization refers to the ability of the chain to charge gas fees in the chosen token. For example, Polygon CDK allows developers to freely let users pay gas fees using their chain’s native tokens instead of ETH.
• The sorter is currently centralized. In the future, other teams or individuals will also be able to run the sorter.

In addition to modularity and sovereignty, there are other advantages to building chains with CDK. The Polygon CDK provides chains with the option to use the AggLayer, which offers a single yet unified cross-chain contract. With it, there is no longer a need for different versions of wrapped assets, improving the user experience of CDK-based application chains.

For example, using the Polygon CDK, application chains for lending and derivatives can choose the Rollup mode (where all data is published on Ethereum), use Polygon zkEVM as the virtual machine, and collect Gas in its native token instead of ETH. On the other hand, application chains for NFTs may adopt the Validium mode, which can choose to publish data on Celestia or a separate Data Availability Committee (DAC), and use ETH as its Gas token.

The sorter is currently centralized (in all major ZK Rollups). However, if the CDK chains are willing, they can eventually use a shared sorter. It is important to note that aggregation does not conflict with modularity or sovereignty.

As of March 2024, 9 teams have used the Polygon CDK to build blockchains, and another 20 teams have entered different stages of development. The CDK framework is completely open source, and anyone can use it for building.

In addition, it is also crucial to upgrade the MATIC token to POL. Currently, MATIC is responsible for securing the Polygon PoS chain. The architecture of the proposed Staking Hub has not been disclosed, but there are proposals indicating that POL will play an indispensable role.

Polygon Ecosystem

Developers are the lifeblood of any ecosystem. Developer activity is often the precursor to user on-chain activity. Despite the market being in a downturn for much of 2022 and 2023, in terms of the number of new developers joining, the Polygon ecosystem is second only to Ethereum.

If developers are the leading indicator of future development, then users are the feedback loop of the blockchain. For Polygon, user activity remains high. The only EVM chain with higher user activity than Polygon is BNB Chain. Please note that here Polygon refers only to Polygon PoS. With more and more chains connecting to AggLayer or using CDK, this number may increase significantly in the future. Overall, developers hope to customize networks to meet user needs, which is exactly the purpose of Polygon’s optimization through CDK.

Compared to other L2 or Solana, Polygon’s DEX activity is still relatively low. Interestingly, Quickswap currently accounts for 60% of all Polygon DEX trading volume. Typically, Uniswap dominates the trading volume across the entire EVM chain.

The chart below compares the DEX trading volumes of different EVM chains. Arbitrum dominates, closely followed by Polygon. It is worth mentioning that Arbitrum provides trading incentives for DEX protocols and users, while Polygon discontinued its incentives in 2022.

TVL is not an important indicator for measuring the success of blockchain, because it does not indicate the quality of capital. In other words, most of the capital in cryptocurrencies can be seen as “mercenary capital”. Capital flows to where there are incentives. Protocols either offer rewards or users participate in the protocol by emptying their wallets. However, if TVL remains at a high or medium level for a long time, it means that users prefer a certain form of chain or protocol. The following figure shows the weekly TVL of different L2s.

In Polygon’s lending application, most of the TVL comes from Aave. Aave accounts for 87% of the total lending TVL on Polygon.

As for the NFT trading volume, the current leading chains are Bitcoin and Ethereum, mainly because NFT is priced in its native assets (BTC and ETH), and the liquidity of these assets is almost the highest in the industry. In terms of trading volume, Polygon is ahead of its EVM peers.

In addition, games are the main contributors to the growth of Polygon PoS. Since 2024, the number of independent addresses interacting with games on Polygon has increased fivefold, from 80,000 to nearly 400,000. Matr1x and Sunflower Land have attracted over 1 million users. This growth is mainly driven by the collaboration between Polygon Labs and Immutable. Immutable provides game developers with a complete set of products, including NFT minting mechanisms, wallets, and SDKs. In addition, it provides all the support related to blockchain, allowing game developers to focus on game development without worrying about the blockchain issues of Web3 games.

Currently, there are more than 40 playable games in the Polygon ecosystem, with several more in development. Immutable’s zkEVM, built using Polygon CDK, has been launched on the mainnet for early access. During this phase, deployment of customized smart contracts is limited to certain game studios.

We often say that cryptocurrencies will not have a substantial impact on “normal” life. However, decentralized physical infrastructure (DePIN) is gradually changing this situation. In terms of DePIN-related transactions, Polygon is clearly lagging behind the leading Solana in the DePIN race. In February, there were over 4 million DePIN-related transactions on Solana, compared to about 39,000 on Polygon. And in terms of DePIN adoption metrics, DIMO is clearly in a leading position on Polygon.

DIMO allows mobile objects to share data while protecting privacy. The first use case for DIMO is automobiles, where drivers can use DIMO devices to share data with stakeholders such as manufacturers and insurance issuers. Currently, nearly 70,000 drivers use DIMO to share data with applications such as ride-sharing, insurance, and peer-to-peer. In return, they can receive DIMO tokens. In addition to automobiles, DIMO’s applications can be extended to any mobile object, including drones, and can be applied to supply chain management, intelligent transportation, and autonomous driving.

Other DePIN projects on Polygon include:

• Decentralized hosting platform Fleek Network provides services for websites and applications through a globally distributed network of nodes.
• GEODNET aims to improve GPS accuracy by establishing a decentralized real-time kinematic network and token incentive mechanism.
• Space and Time aims to create a global transparent database that is not owned by a single entity.
• XNET, aimed at improving mobile connectivity.

From the current situation, the development of DePin on networks such as Solana is significantly better than Polygon. And the development of Polygon in this area still needs to be observed.

Challenges of Polygon

Of course, all changes come with corresponding challenges. Polygon is currently facing some challenges as well.

First, the frequency of proof submission is too low.

The finality on Polygon zkEVM can be roughly divided into three stages: the trusted state where transactions are finally completed on L2, the virtual state where Ethereum receives transaction data from L2, and the combined state where Ethereum receives proof of verification data. Users can continue to interact with L2 applications after the first stage is completed. But if they want Ethereum’s guarantee, they need to wait. Transactions on L2 will only be finally completed on Ethereum after the third stage. Polygon zkEVM submits proof to Ethereum approximately every 20 to 30 minutes, which means that users must trust the Polygon zkEVM sequencer between two batches of transactions within 20 to 30 minutes.

The reason for not submitting proof more frequently is that each transaction batch has a fixed cost, which is amortized according to the number of transactions. Submitting proof more frequently means that the fixed cost will increase, and the fixed cost will be amortized over the same number of transactions, thereby increasing the cost per transaction.

If Polygon zkEVM (also applicable to other Rollups) needs to submit proofs more frequently on Ethereum, there must be more activity on it, otherwise the cost of submitting proofs needs to be significantly reduced. With the maturity of ZK technology, the cost of proofs may decrease, but it is still high at present. Therefore, Rollups need more users to submit proofs to Ethereum more frequently and maintain lower transaction costs.

Polygon PoS Block Reorganization Issue

Polygon has been heavily criticized due to frequent blockchain reorganizations. Although the risk of this issue has been largely reduced, it has not been completely resolved.

For chains like Bitcoin, many miners are competing to find new blocks. Sometimes, more than one miner may succeed. Suppose two miners find new blocks at the same height of 1000 (#1000A and #1000B). Due to propagation delay, some nodes will see #1000A, while others will see #1000B. If a new block is discovered based on block #1000B, block #1000A will be discarded or reorganized by the network.

It should be noted that it is possible for another miner to discover the third block #1000C at the same height (1000), and the same or other miners may discover two more blocks (#1001 and #1002) on this block. In this case, blocks #1000A and #1000B will be discarded, and #1000C will become part of the chain. Similarly, Ethereum may face rewrites, but the depth rarely exceeds one block.

Polygon’s reorgs are more frequent because it uses two consensus protocols: Bor and Heimdall. Bor block producers can produce 16 blocks at once to improve efficiency and submit them to Heimdall for verification. When validators miss the previous block producer, they can reforge up to 32 blocks (16 x 2) at most. The block time of Polygon PoS is about 2 seconds, so the time for 32 blocks is about 1 minute. In other words, these reorgs mean that applications should not (cannot) assume that transactions such as deposits will be completed in at least 1 minute.

Although Polygon has already solved deeper reorganization issues, reorganizations of up to 32 blocks are not impossible.

Pause of Polygon zkEVM

Like most EVMs, Polygon zkEVM also has only one sequencer, and any errors could cause it to stop running. On March 23, Polygon zkEVM stopped for about 10 hours between transaction batches 2001558 and 2001559. Currently, zk technology is still in its early stages, and Polygon zkEVM TVL is not that high. However, if such a shutdown occurs in the later stage, it is likely to drive capital away from the chain.

Next Steps for Polygon

In this article, we review the past and present of Polygon. We first understand how Polygon has taken a dominant position in the EVM network and the reasons behind its shortcomings in several aspects.

During the writing process, I thought of the Nirvana of the phoenix. Many technological advances also go through similar cycles. We see new standards emerging constantly, quickly adopted and becoming mainstream. People start to focus on new and trendy things until the innovative capacity of existing resources surpasses the new standards.

Throughout 2022, Polygon can be seen as a strong player, given its advantage in DeFi Summer, Polygon’s positioning is both secure and comfortable. However, with the entry of Optimism and Arbitrum into the market, developers have other options. And as meme coins take off on Solana and gradually become the “safe” choice for developers looking for niche use cases, Polygon’s situation is worrisome.

Through communication with Polygon Labs, we have gained an understanding of the evolution of standards. When a standard is in its growth stage, the motivation of all participants is to maximize its adoption. Polygon Labs achieved this in their BD work in 2021. The largest companies and enterprises are all leveraging Polygon. And as competition intensifies, the motivation of networks like Polygon will also shift towards developing new solutions to help more developers join in.

This is exactly the focus of Polygon’s work last year, which is on AggLayer and CDK. As shown in the chart at the beginning of this article, the market often does not price it before the large-scale implementation and impact of technological changes.

However, while AggLayer and CDK help to unify different chains on the Ethereum, Polygon still needs some breakthrough applications to prove the feasibility of the current network. For Solana, such breakthrough applications are Jupiter and Tensor. Users of Jupiter (transaction memes) or Tensor (transaction NFT) have tasted the sweetness. As the underlying infrastructure (AggLayer) continues to evolve, applications using CDK (expansion) in the retail environment are still under construction. If these breakthrough applications emerge, people’s attention will turn back to Polygon. By then, like a phoenix rising from the ashes, Polygon will rise again.

Apple Inc. has been involved in the computer revolution early on, but lost to IBM and Windows in the 1980s. However, after a decade, with the company’s restructuring and the return of Steve Jobs, Apple once again became a dominant force.

In the market where people are constantly chasing hot new things, the development of Polygon may be overlooked. However, as long as this technology can bring benefits, it will sooner or later become the focus of discussion. Before that, we will witness this transformation.