Polygon is a second layer (L2) project built on the Ethereum blockchain that is giving a lot of talk during these months. This year, 2023, it has appreciated by 60% and 250% from the lows set last June. Unlike other projects, Polygon has risen backed by strong fundamentals that have supported the price rise of this well-known token. And there are several reasons that justify this rise and, in turn, that it may continue the upward path...
Polygon does not compete, it cooperates with Ethereum.
Ethereum is undoubtedly the king of the smart contract blockchain ecosystem. But it seems that after the Merge merger that migrated the network towards the Proof of Stake (PoS) consensus model has brought improvements, but problems such as scalability and commission payments remain unresolved. Of course, at the level of security and community, there is no one who competes with this blockchain. And this is precisely what three Indian developers saw in 2017 carrying out the creation of Polygon (formerly Matic). Polygon is an Ethereum scaling protocol (that is, a second layer or L2) designed to help Ethereum in the difficult task it faces with network scalability. Let's give an analogy to understand it easily; Polygon is like an external processor that connects to Ethereum to allow increasing the processing capacity of the network. Polygon aggregates Ethereum transaction data into larger chunks, then processes it and sends it instantly to Ethereum.
Polygon operation diagram. Source: Bit2Me Academy.
In this way, the Ethereum network is decongested, allowing decentralized applications (dapps) hosted on Ethereum to be faster and cheaper while maintaining the same security standards. In turn, being built on Ethereum allows developers to easily port dapps from Ethereum to Polygon. This fact also greatly benefits the Polygon token (MATIC) as demand for its token continues to grow at the same pace as the network.
Polygon expands thanks to NFTs.
Another factor that must be taken into account about a blockchain is not only its objective and utilities, but also the adoption it is having by the community. We have recently seen how the trading volume of NFTs present on Polygon skyrocketed by 124% during the month of January along with the number of NFT sales that also grew by more than 150%. This growth is largely due to the NFT collections of Collect Donald Trump Cards and Mocaverse Realm Tickets, which has propelled Polygon to try to take second place from Solana as the second most used blockchain for NFTs.
NFT trading volume ranking by blockchains in January 2023. Source: Dappradar.
Polygon has also seen a big boost in average daily users, in part because its speed and low transaction fees make it well suited for blockchain games. Although the number of unique wallets interacting with Polygon fell 5% in January, it still managed to hold on to third place.
Average daily NFT users of the different blockchains in January 2023. Source: Dappradar.
Polygon continues to grow in DeFi.
Within the decentralized finance ecosystem, Polygon is not following the same pace present in the NFT market. Despite having experienced a 46% growth in its total value locked (TVL), it finished in sixth position this past January. Of course, Polygon's business development team continues to take giant steps. We can see clear proof of this in the partnerships achieved with big brands such as Adobe, Disney, Adidas, Starbucks or Meta, among others. As we saw previously with Avalanche's partnership with Amazon, working with big brands allows for greater adoption of the technology and therefore, more income for the protocol.
Total Locked Value (TVL) of the different blockchains within the DeFi framework. Source: Dappradar.
Polygon is at a very good price.
If we compare MATIC's performance against the general consensus, it bottomed out during the month of June last year and has not stopped rising since then. In contrast, the index that measures the total capitalization of the cryptocurrency market (TOTAL, blue line) has grown by almost 20%, having bottomed out in November. During this period, MATIC has managed to multiply its value by 10x, which shows us the strength of Polygon compared to the general trend of the market.
Comparison of movements between MATIC and the TOTAL cryptocurrency index. Source: Tradingview.
After almost multiplying its value x3 from the lows, it is now declining these days. This does not mean that on a technical level this rally is over, given that right now the price is acting as support for what was previously the October high above $1,13 (yellow line). During the past week the price broke this level strongly, so now we must see how it reacts, given that a close below that level could take the price above the $1 level.
The $1,13 level has gone from resistance to support in a matter of months on MATIC. Source: Tradingview.
On the other hand, if it manages to close above that level, the next levels to watch are the Fibonacci levels of 0,5 and 0,618, between $1,63-1,94 respectively. If you don't know how Fibonacci levels work, maybe you should review an article that helps you understand it clearly…