Daily active addresses were 1.2 million (+47.6% QoQ), and average daily transactions were 4.1 million (+3.9% QoQ). After emerging as the leading sector in Q1 2024, gaming continued leading in Q2 2024.
The average transaction fee on Polygon PoS fell to $0.01, a 41.1% decrease QoQ. In Q1 2024, EIP-4844 was enacted on Polygon PoS mainnet.
Polygon Labs integrated SP1, a zkVM built with Plonky3, to generate pessimistic proofs for the AggLayer. The pessimistic proof ensures cryptographic security by preventing any chain from withdrawing more than its deposits, promoting safe and seamless asset transfers between chains.
A $1 billion Community Grants Program (CGP) was launched to support developers and projects within the Polygon ecosystem, following community consensus as part of the POL upgrade. Over the next decade, CGP will distribute 100 million POL tokens annually, managed by an independent Community Treasury Board.
The Polygon Governance Hub was announced in development with Aragon as a step towards decentralization. It will be a full-stack governance solution and user interface for the community focusing on two of the three pillars of Polygon Governance – Protocol Governance and System Smart Contracts Governance.
Primer
Polygon Labs is a zero-knowledge (ZK) focused software company building and developing a network of aggregated blockchains via the AggLayer. As public infrastructure, the AggLayer will bring together user bases and liquidity for any connected chain and leverage Ethereum as a settlement layer. Polygon Labs has also contributed to the core development of several widely adopted scaling protocols and tools for launching blockchains, including the Polygon Proof-of-Stake (PoS) network, Polygon zkEVM, and Polygon Miden. Polygon Chain Development Kit (CDK) is a collection of open-source software components that makes it easy for developers to design and launch ZK-powered L2s on Ethereum.
The core vision of an aggregated network is to enable shared state and unified liquidity through the integration of ZK technology for a horizontally scalable web of chains that looks and feels more like the internet. As a part of the roadmap, there is a proposal to connect the Polygon PoS network to the AggLayer as the first phase in upgrading the sidechain to a zkEVM Validium network. Community and core developer discussions about significant updates to protocol architecture, tokenomics, and governance remain ongoing.
Over the past year, Polygon has undergone a significant number of technical developments. These updates aim to address inherent scaling challenges in crypto by synthesizing the two most important approaches to blockchain design: modular and integrated designs. While modularity allows new sovereign chains to be spun up and designed to any specification, it often results in fragmented liquidity and an underwhelming user experience. On the other hand, integrated chains face scaling limits.
Core developers at Polygon Labs have proposed a third way: an aggregated approach to blockchain scaling. They assert that a single chain does not have the capacity to handle any future state of Web3 that approaches the size of the internet; only an aggregated network will suffice.
AggLayer
In January 2024, Polygon Labs introduced the AggLayer, a credibly neutral service designed to unify the liquidity and state of ZK chains by aggregating proofs from all connected chains, verifying chain states, and settling to Ethereum. This system enables low-latency crosschain coordination and safe interoperation of different chains, facilitating crosschain transactions and allowing developers to focus on project design without bootstrapping liquidity or users.
In the second quarter of 2024, it was announced that SP1, a zkVM built with Plonky3, would be used to generate pessimistic proofs for the AggLayer, enhancing secure crosschain interoperability. The pessimistic proof ensures cryptographic security by preventing any chain from withdrawing more, on a unified bridge, than it deposits, ensuring safe and seamless asset transfers between chains.
Furthermore, Union integrated with the AggLayer, enabling seamless crosschain transactions and asset transfers between AggLayer and IBC-enabled chains. Additionally, Espresso Systems' announced a collaboration with Polygon Labs to help build core components of the AggLayer, improving transaction efficiency and user experience across multiple chains. Espresso will coordinate the interdependent rollups before they settle on Ethereum.
Polygon CDK
In Q3 2023, Polygon Labs released the Polygon Chain Development Kit (CDK), an open-source development framework for launching ZK L2s and transitioning existing EVM L1s to L2s. Polygon CDK focuses on customizability and ZK technology, with future functionality that will make connecting Polygon CDK chains to the AggLayer seamless.
In the fourth quarter of 2023, notable integrations and announcements included partnerships with Celestia, Hyper Oracle, and Gateway. Additionally, Polygon Labs and the NEAR Foundation collaborated to develop a ZK-prover specifically designed for WebAssembly blockchains. The zkWasm prover aims to bridge the gap between Wasm-based chains and the Ethereum ecosystem, including Polygon CDK chains. NEAR DA also integrated with the Polygon CDK.
In Q1 2024, Polygon Labs announced the development of a Type 1 upgrade as part of the next generation of ZK proving technology. The Type 1 enables any existing EVM chain to become a ZK Layer-2 chain, making for a more ZK-friendly integration with Polygon's AggLayer. Type 1 can also prove Ethereum blocks at an average cost of $0.002 to $0.003 per transaction.
Polygon Miden
Polygon Miden is an upcoming ZK L2 rollup utilizing the Rust-based Miden Virtual Machine (MVM) instead of the Ethereum Virtual Machine (EVM). Miden aims for high-throughput applications using ZK-proofs, emphasizing sovereignty and client-side proving as core features for scalability. Additionally, Polygon Labs introduced Polylang, a TypeScript-based language for Miden VM.
Multiple teams have already committed to developing on Miden. Rize Labs announced its online poker game Aze, Keom is developing a decentralized order book exchange, and Composability Labs is building Spark, an onchain order book. The Miden alpha testnet v2 was launched in Q2 2024.
Napoli
In Q1 2024, Polygon PoS underwent the Napoli upgrade to enhance performance and expand features, including support for RIP-7212, improved parallel execution, and new opcodes from Ethereum's Cancun upgrade. The Napoli upgrade brings significant technical advancements, such as better account abstraction and more efficient parallel transaction execution.
Additional Developments
Additional developments related to the broader Polygon ecosystem in Q2 2024 include:
Polygon Labs Acquires Toposware: Polygon Labs acquired Toposware, a leading ZK engineering startup that helped build the Type-1 ZKEVM prover, to integrate its team with Polygon's ZK development teams.
Avail Unification Drop: Avail announced the launch of the Avail Claims Portal, part of Avail's "Unification Drop," which allocated Polygon PoS Stakers 70 million AVAIL.
Avail DA: Avail announced that developers building rollups on Polygon, Arbitrum, Optimism, Starkware, zkSync, and Starkware can utilize Avail DA.
Polygon ID Spin Out as Privado ID: Polygon ID spun out from Polygon Labs as Privado ID. Privado ID will leverage ZK technology, support identity standards, and integrate with the Verax attestation registry on the Linea zkEVM chain.
Financial and Network Overview
Market Capitalization
Following an explosive six months, the crypto market experienced a downturn in Q2 2024. MATIC’s circulating market cap dropped to $5.5 billion, a 44.3% decrease QoQ. MATIC ended the second quarter as the 20th largest crypto asset, down three spots from the 17th rank at the end of Q1 2024. For reference, BTC and ETH market cap changes were -12% and -6% respectively.
Revenue
In Q1 2024, EIP-4844 was enacted on Polygon mainnet, introducing blobs and significantly changing the Polygon cost structure. The result of EIP-4844 and blobs is cheaper posting costs to the L1, resulting in lower average transaction fees for users. Consequently, the average transaction fee on the network fell to $0.01, a 41.1% decrease.
As a result, Polygon's revenue, derived from network transaction fees, in Q2 2024 fell to $4.0 million, a 40.6% decrease. This revenue decrease was due to the drop in the average transaction fee and not a decrease in network activity, which remained high (to be covered later).
Supply
As part of the Polygon upgrades, MATIC is being phased out in favor of POL. Through an in-development staking hub announced for 2025, POL will enable holders to contribute to network security on various chains in the Polygon ecosystem via a native re-staking protocol, earning rewards for diverse services. These services range from basic transaction validations to more advanced tasks like generating ZK-validity proofs. Each protocol in the Polygon ecosystem can offer customized roles and rewards for validators.
Nearly all of the MATIC genesis supply is liquid, with 98.8% available. Additionally, 36.9% of the eligible supply is staked. The annualized nominal yield from staking is 5.1%, while the annualized real yield is 3.2%.
Activity
Polygon address activity continued its growth streak with another beat in Q2 2024. The average daily active addresses climbed to 1.2 million, a 47.6% increase QoQ. The average daily returning addresses rose to 1.0 million, up 50.5% QoQ, while the average daily new addresses were 167,800, reflecting a 31.7% rise QoQ.
Polygon transactions were slightly up and just below all-time highs, with an average of 4.1 million daily transactions, showing a 3.9% increase QoQ. For comparison, Arbitrum and Base had average daily active addresses of 545,000 and 528,000, respectively.
Sectors
After emerging as the leading sector in Q1 2024, gaming continued to lead the way in Q2 2024. The average daily gaming active addresses were 382,000, up 85% QoQ.
Over 95% of this gaming activity comes from MATR1X, a Web3 entertainment platform that integrates various gaming and NFT elements within a metaverse setting. MATR1X FIRE, the driving force behind this growth, is a mobile shooting game that blends traditional gaming with blockchain, enabling players to earn through gameplay. The game emphasizes a cyberpunk aesthetic and provides a dynamic battle experience that incorporates various firearms and tactical gameplay elements.
Following gaming, Polygon had a healthy distribution of onchain activity, with wallets, transfers, stablecoins, DeFi, and others remaining relatively flat QoQ.
Development
Polygon Labs achieved ISO 27001 certification, demonstrating its commitment to top-tier information security standards. This certification, verified by Schellman Compliance, covers the development of blockchain scaling solutions and ensures robust security practices.
Additionally, P2 Ventures committed $50 million via Hadron FC to support startup founders in the Polygon ecosystem. This initiative offers mentorship, legal and regulatory assistance, and networking opportunities, with initial projects including 36 startups engaging in a co-building week in Dubai.
Polygon Governance 2.0 introduces three main governance pillars for Polygon. Each pillar of governance will have its own unique governance framework, aiming to create scalable and efficient governance mechanisms.
Protocol Governance: Facilitated by the Polygon Improvement Proposal (PIP) framework, providing a platform for proposing upgrades to Polygon protocols.
System Smart Contracts Governance: Addresses upgrades of protocol components implemented as smart contracts. The Protocol Council, governed by the community, will be responsible for these upgrades.
Community Treasury Governance: Establishes a self-sustainable ecosystem fund, the Community Treasury, to support public goods and ecosystem projects. The governance process involves two phases, starting with an independent Community Treasury Board and evolving into community-driven decision-making.
In Q2 2024, the Governance Hub was launched with coordination by Aragon, enabling community-driven protocol and smart contract upgrades. It will be a full-stack governance solution and user interface for the community focusing on two of the three pillars of Polygon Governance – Protocol Governance and System Smart Contracts Governance. Users can propose and vote on PIPs, enhancing transparency and participation.
In Q4 2022, PIP-29 proposed the introduction of the Polygon Protocol Council, which was adopted by the community. The council is responsible for conducting both regular and emergency upgrades to system smart contracts, specifically components of Polygon protocols that are implemented as smart contracts on Ethereum. The Protocol Council consists of 13 publicly named members.
In Q1 2024, the Polygon Community Treasury Board (CTB) and Governance Framework were announced, aiming to enhance the ecosystem through strategic capital allocation. This framework includes direct and Grant Allocator funding tracks overseen by the CTB, responsible for funding decisions, application reviews, and post-cycle reporting.
Michael Blank, chief operating officer at Polygon Labs since March 2022, announced he is stepping down. Polygon Labs also announced that Sandeep Nailwal, co-founder and executive chairman of Polygon Labs, is expanding his role to serve as Chief Business Officer.
Ecosystem Overview
DeFi
Polygon PoS DeFi Total Value Locked (TVL) ended Q2 2024 at $1.0 billion, reflecting a 22.9% decrease from the previous quarter. However, TVL denominated in MATIC increased by 38.1% to 1.8 billion, indicating that the decrease in USD terms was due to the decline in the price of MATIC rather than a net outflow of capital. Polygon PoS remained the eighth largest network by TVL.
Aave continued to lead the Polyon PoS network in TVL by a wide margin in Q2 2024. All leading DeFi protocols saw decreases in TVL in the second quarter. Aave's TVL was $592.5 million, down 16% QoQ, while Uniswap's TVL was $112.4 million, reflecting a 13% decrease. SushiSwap's TVL fell to $75.8 million, a 25% decrease, yet it jumped to the third largest protocol by TVL. Quickswap saw the largest decline of leading protocols, with its TVL dropping to $72.3 million, down 35% QoQ.
The stablecoin market cap on Polygon PoS continued to increase in Q2 2024, reaching $1.8 billion, a 17.5% increase from the previous quarter. All three of the leading stablecoins, USDC, USDT, and DAI, saw similar levels of growth, indicating a well-dispersed stablecoin ecosystem on Polygon. USDC's market cap rose to $907.7 million, a 15% increase QoQ, and the migration to native USDC from USDC.e began in March 2024. USDT's market cap increased to $618.2 million, reflecting a 25% growth QoQ. DAI's market cap grew to $188.6 million, up 17% QoQ. Polygon was the eighth-largest network by stablecoin market cap.
Additionally, Japan’s Sony Bank conducted tests on Polygon PoS, exploring the integration of stablecoins for cross-border transactions.
NFTs
The Polygon PoS NFT ecosystem remained strong in the second quarter of 2024. The average daily NFT volume was $1.8 million, reflecting a slight decrease of 5.7% from the previous quarter. However, the average daily NFT sales increased to 52,000, marking a 1.8% rise. Polygon PoS was ranked among the top four chains by NFT volume, only trailing Ethereum, Bitcoin, and Solana.
Polygon PoS had a healthy distribution of activity by NFT sales volume. The leading collections continued to be DraftKings Reignmaker, Origin Pass, and Gas Hero. Additionally, Sunny Girl and multiple Chip Q NFTs jumped to the top collections.
Among the more notable moments in the Polygon PoS NFT sector during Q2, prices for former President Donald Trump's NFT collection doubled after Jimmy Kimmel mocked collectors on his show.
Gaming
Gaming saw explosive growth at the end of Q1 2024, and this trend continued in the second quarter of 2024. The average daily gaming active addresses increased to 382,000, marking an 85.0% increase, while daily gaming transactions rose to 892,200, up 21.6% QoQ.
As mentioned above, the increase in activity was primarily driven by MATR1X’s MATR1X FIRE game. This mobile shooting game blends traditional gaming with blockchain, enabling players to earn through gameplay. It features a cyberpunk aesthetic and provides a dynamic battle experience with various firearms and tactical gameplay elements.
Further supporting the gaming ecosystem, in Q1 2024, Immutable, in collaboration with King River Capital and Polygon Labs, launched the $100 million Inevitable Games Fund focused on the Web3 gaming ecosystem. Immutable is building a zkEVM with the Polygon CDK. Additionally, Square Enix partnered with Animoca Brands to expand its NFT game Symbiogenesis globally. Symbiogenesis, launched in December, features 10,000 Ethereum NFT characters and additional in-game NFTs on Polygon.
Institutional
Over the last six months, Polygon has had a number of institutional partnerships, including:
Fox Corporation unveiled Verify, an open-source protocol initially launched on Polygon PoS, aimed at enabling publishers to register and authenticate the origin of media content, particularly in combating the proliferation of AI-generated media. Fox has since announced plans to upgrade Verify to a Layer 2 built with Polygon CDK, with TIME as the first publishing partner.
Polygon Labs became a member of theTokenized Asset Coalition (TAC), an initiative focused on leveraging public blockchains, asset tokenization, and institutional DeFi to transform capital formation and management onchain.
Polygon had a strong Q2 2024 despite the broader market correction. The average daily active addresses on Polygon PoS reached 1.2 million, a 47.6% increase QoQ, and transactions averaged 4.1 million daily, a 3.9% increase. Gaming continued to be the primary driver of activity, with MATR1X FIRE as the driving force behind this growth. The stablecoin market cap continued to increase, reaching $1.8 billion, a 17.5% rise from the previous quarter.
The Polygon network saw continued growth in its technical development as well. The introduction of the AggLayer in January 2024 was a crucial milestone, as it is a core component of Polygon's roadmap, unifying liquidity, and states across connected chains. In Q2, the integration with SP1, a zkVM built with Plonky3 to generate pessimistic proofs for the AggLayer, was announced. Additionally, more teams announced CDK chains, including Moonveil, OKX, Fox, and Ronin. Polygon continues to aggressively pursue its new roadmap and technical developments while maintaining all-time high network activity.
This report was commissioned by Matic Network (BVI) Ltd. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization may have input on the content of the report, but Messari maintains editorial control over the final report to retain data accuracy and objectivity. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.
No part of this report may be (a) copied, photocopied, duplicated in any form by any means or (b) redistributed without the prior written consent of Messari®.
